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
December 13 2005
BRITISH ENERGY GROUP PLC
(Registrant's name)
Systems House
Alba Campus
Livingston
EH54 7EG
(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: 'Interim Results' dated 13 December 2005
13 DECEMBER 2005
BRITISH ENERGY GROUP PLC
2005/06 HALF YEAR including SECOND QUARTER TO 2 OCTOBER 2005 of the FINANCIAL
YEAR ENDING 31 MARCH 2006
Key Points
- British Energy has built on the positive first quarter results, delivering a
good performance for the half year. Our prime focus continues to remain on
improving our operational reliability.
- Operating profit* of GBP135m for the half year, GBP58m for the second
quarter.
- EBITDA* of GBP227m for the half year, GBP106m for the second quarter.
- Results reflect the benefit of higher electricity prices with an
operating margin of GBP3.9/MWh at contracted summer prices.
- Total output for the half year was 33.1 TWh (nuclear 30.6 TWh, coal 2.5
TWh), up from 31.7 TWh in the first half of financial year 2004/05 (nuclear
28.7 TWh, coal 3.0 TWh).
- Total output for the current financial year to 9 December 2005 was 44.1 TWh
(nuclear 40.1 TWh, coal 4.0 TWh) after total unplanned losses for the period
to 9 December 2005 of 9.6 TWh.
- As announced on 25 November 2005, due to extensive inspections at Hartlepool
and Heysham 1 and the need to replace the generator stator on one unit at
Hartlepool, we expect that nuclear output for the financial year 2005/06 is
unlikely to exceed 61 TWh. We expect nuclear output for the financial year
2006/07 to be around 63 TWh.
- Realised price was GBP25.0/MWh for the half year, compared to GBP24.7/MWh in
the first quarter.
- As at 9 December 2005, the Company had fixed contracts in place for
approximately 95% of planned output for the financial year 2005/06 at an
average price of GBP32.5/MWh. Financial year 2006/07 book approximately
half fixed at an average price of approximately GBP35/MWh excluding 5 TWh
of capped contracts.
- Operating cash inflow from operations was GBP150m for the half year. Net
debt decreased in the half year by GBP113m to GBP107m. Cash and liquid
funds were GBP569m and collateral requirements were GBP274m. Collateral
requirements as at 9 December 2005 were GBP419m.
- Investment in plant is expected to exceed GBP250m including extra
investment in strategic spares for the financial year 2005/06.
- The NLF Cash Sweep percentage was 64.69% as at 2 October 2005, down from
64.99% at 31 March 2005 as a result of the exercise of a number of the
Company's warrants.
- No accrual for any potential NLF Cash Sweep payment has been made in these
interim financial statements in line with the Group's accounting policy. An
accrual will be made at 31 March 2006 for any NLF Cash Sweep payment.
- In accordance with the dividend policy set out within the accounts for the
period ended 31 March 2005, no dividend has been declared for the half
year.
Bill Coley, British Energy CEO said:
"We continued to deliver good financial performance through the half year
benefiting from higher electricity prices. We are disappointed with the recent
outages at Hartlepool and Heysham 1 which have impacted our projection of output
for the year, but see continuing improvements in operating metrics as a result
of our performance improvement programme. The British Energy team remains keenly
focused on the long-term by making the investments in the plant and people to
improve reliability and maximise output."
Quarter ended 2 Half year ended 2
October 2005 October 2005
Business Performance
Revenue, as adjusted (GBPm) * 487 1,008
Operating costs, as adjusted (GBPm) * 429 873
Operating profit, as adjusted (GBPm) * 58 135
EBITDA, as adjusted (GBPm) * 106 227
Total Results (including re-measurements)
Revenue (GBPm) 492 979
Operating costs (GBPm) 434 876
Operating profit (GBPm) 58 103
EBITDA (GBPm) 106 195
Cash and liquid funds (GBPm) 569
Net (debt) (GBPm) (107)
Realised price (GBP/MWh) 25.3 25.0
Operating unit cost (GBP/MWh) 21.8 21.1
Operating margin (GBP/MWh) 3.5 3.9
Output (TWh) 15.7 33.1
Nuclear 14.9 30.6
Coal 0.8 2.5
The Group's half year results have been prepared in accordance with
International Financial Reporting Standards (IFRS) for the first time. This is
the first time since completion of the restructuring of the Group on 14 January
2005 that British Energy Group plc has published half year results. Therefore
this report does not contain any comparative financial information but, where
appropriate, does contain comparative non-financial information.
Items marked * represent the results of operations adjusted to reflect the
results before exceptional charges and other movements arising from
re-measurement. During the half year and quarter there were no exceptional
charges. For the half year and quarter the re-measurement adjustments relate
solely to the re-measurement impact of IAS 39 on the results for the half year
and quarter. British Energy believes that the adjusted measures provide a better
indication of the underlying business performance.
Certain defined terms used in these half year results are contained in the
Glossary at the back of this statement.
Management Presentation and Conference Call
Management will host a presentation for analysts, institutional investors and
bondholders at 9:15am (UK time) today, 13 December 2005 at Financial Dynamics,
Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB.
The presentation will be webcast (www.british-energy.com) and dial in facilities
can be accessed by dialling;
UK dial in: 0845 113 0049
International dial in: +44 (0) 1452 542 303
US dial in: 1 866 434 1089
There will be a replay facility for 7 days:
UK local rate no: 0845 245 5205
UK International no: +44 (0) 1452 550 000
UK PIN (access) no: 3181452#
Management will host a further conference call for U.S. analysts, institutional
investors and bondholders at 2.00pm (UK time), 13 December 2005. The conference
can be accessed by dialling;
UK dial in: 0845 113 0049
International dial in: +44 (0) 1452 542 303
US dial in: 1 866 434 1089
For further information please contact:
John Searles 01506 408 715 (Investor Relations)
Andrew Dowler 020 7831 3113 (Media Enquiries)
A copy of this release and a copy of the presentation in pdf file format can be
found on the Company's web site at www.british-energy.com.
CHAIRMAN'S STATEMENT
The first half has demonstrated improvement in financial performance largely due
to rising electricity prices and to an improvement in output compared to last
year.
The performance improvement programme has progressed well. PiP is evolving into
a programme of continuous improvement which we believe will improve the
reliability of our power stations. An increase in output, however, will take
time as we complete the necessary investment to improve the materiel condition
of the plant. The reduction in our output target for the current year to a level
unlikely to exceed 61 TWh as announced on 25 November 2005 reflects this and
while disappointing is largely due to unplanned boiler closure unit inspections
at Heysham 1 and Hartlepool together with the need to replace the generator
stator on one unit at Hartlepool.
The current energy environment provides both opportunities and challenges for
British Energy. The Group has improved substantially the fixed prices for
expected output this year in a period when energy markets continue to be highly
volatile. This requires us to remain focused on managing cash and collateral.
British Energy welcomes the Government's Energy Review and we look forward to
the role we can play in helping the UK meet its energy requirements. The UK
needs a balanced energy policy and it is the role of Government to define the
framework. Nuclear power can make an important contribution to UK targets on
climate change, security of supply and competitiveness.
We have continued to strengthen the management team throughout the half year.
Peter Wakefield joined as Safety and Technical Director in April 2005. Peter was
previously Generation and Safety and Assurance Manager for Eskom in South Africa
and has extensive experience in all aspects of nuclear power plants. Recent WANO
award winner Peter Prozesky has also joined from Eskom as Head of Operations
East, bringing with him over 25 years of operational and project management
skills.
We will continue to build the strength of our team with an aim of achieving
world-class nuclear operations.
Safety and environmental performance remain key priorities as can be seen in the
fuller discussion later in this report. However, as reported in our last Report
and Accounts, there was a fatal accident in July 2005 at Eggborough power
station where one of our contractors sadly lost his life. We continue to work
with our contractors to improve working practices.
In accordance with the dividend policy set out within the accounts for the
period ended 31 March 2005, no dividend has been declared for the half year. The
Board of Directors does not currently expect to propose a dividend before the
financial year ending 31 March 2007.
The Board is committed to maximising shareholder returns after considering the
Company's need to improve financial stability, maintain an appropriate capital
structure, make appropriate investments in the plant and meet the collateral
requirements for the Group.
CHIEF EXECUTIVE'S REVIEW
British Energy completed a good first half of the financial year ending 31st
March 2006 benefiting from rising electricity prices. Operating profit rose to
GBP135m for the half year. EBITDA rose to GBP227m, reflecting an increase in
average realised price to GBP25.0/MWh. Earnings per share were 11.9p.
Cash flow from operations in the half year improved substantially at GBP150m
compared to the equivalent period last year, reflecting higher realised prices
for summer power contracts. This resulted in a net debt position at 2 October
2005 of GBP107m after debt of GBP676m.
Total output was 33.1 TWh for the half year following marginally lower than
expected output for the second quarter of 15.7 TWh largely due to outages
related to Heysham 1 and Hartlepool and planned maintenance activity at
Eggborough. We remain focused on improving the operational reliability of our
plant, through carefully targeted investment.
Total output to 9 December 2005 was 44.1 TWh of which nuclear output was 40.1
TWh. Unplanned losses to 9 December 2005, excluding net additional unplanned
losses due to boiler closure units at Heysham 1 and Hartlepool of 2.4 TWh, were
7.2 TWh. We will continue to work with the regulator regarding additional
inspection of the boiler closure units at Heysham 1 and Hartlepool.
We have continued to make good progress with the investment programme bringing
total investment in plant to GBP102m for the half year. Five statutory outages
have been completed to date with one further outage scheduled to be completed
prior to 31 December 2005. The out-turn of these statutory outages and higher
unplanned losses will lead to higher costs. We now expect that investment in
plant will exceed GBP250m including extra investment in strategic spares for the
financial year 2005/06.
The performance improvement programme is being embedded into the business as a
programme of continuous improvement and has continued to make the significant
improvements in our people, processes and the systems required to achieve
world-class operations. Many functions are now in place within the stations and
senior personnel hires have been completed. Key performance indicators across
many nuclear performance metrics have improved in the half year.
Trading completed a good half year compared to the equivalent period last year
reflecting higher electricity prices for summer power contracts. The realised
price improved in the second quarter reflecting rising summer power prices and
good management of balancing costs despite outages at Heysham 1 and Hartlepool.
The trading book has progressed well during the third quarter with the focus
remaining on managing collateral and exposure related to unreliability in output
in a highly volatile electricity market.
On 15 September 2005, the Group announced its decision to extend the accounting
life of Dungeness B by ten years to 2018. This is a result of a thorough
technical and economic assessment of the station working in consultation with
the Nuclear Decommissioning Authority and reflects our intention to seek life
extensions for all our power stations where safe and profitable to do so. The
life extension at Dungeness B will ensure continued contribution to reducing CO2
emissions in the UK.
Outlook
The financial year will continue to be a year of consolidation in operational
performance. Many of the organisational changes required for the improvement
programme are in place. We will continue to strengthen the team at the stations.
There have been improvements in unplanned losses before taking into account the
extended outages at Heysham 1 and Hartlepool. We expect underlying performance
to continue throughout the remainder of the year. One unit at Hartlepool is
expected to remain shutdown until March 2006 for replacement of the generator
stator. This, in association with the previous boiler closure unit inspections
at Heysham 1 and Hartlepool caused us to conclude that nuclear output is
unlikely to exceed 61 TWh for the year 2005/06.
As we have previously communicated, improvement in performance is expected to
take time due to the requirement to invest in the materiel condition of the
stations. Much of the work performed in the current year is required to
stabilise output due to under-investment in prior years. This is expected to
continue over the next two financial years during the remaining statutory
outages. This remedial work may also impact on the length of statutory outages
and lead to higher costs. There is also a requirement to undertake further
inspections of Heysham 1 and Hartlepool boiler closure units in the financial
year 2006/07. Accordingly, we expect nuclear output for the financial year 2006
/07 to be around 63 TWh.
The electricity markets continue to show considerable volatility. The focus will
remain on improving financial stability and collateral management. We have
benefited from recent price rises and plan to progressively close out the
remainder of the trading book for 2005/06.
OPERATIONAL REVIEW
Plant Output and Performance
Nuclear output was 14.9 TWh (71% load factor) for the quarter and 30.6 TWh (72%
load factor) for the half year. The nuclear output for the quarter ended 30
September 2004 was 13.7 TWh (65% load factor) and for the six months ended 30
September 2004 was 28.7 TWh (68% load factor). During the quarter statutory
outages were completed at Heysham 1 and Hunterston B and one started at
Dungeness B. Since successfully completing its statutory outage in the first
quarter, Sizewell B has operated continuously at full power. There were planned
outages amounting to 2.3 TWh of lost output in the quarter and 6.1 TWh for the
half year. Unplanned losses for the quarter were 3.7 TWh and 6.0 TWh for the
half year, including outage overruns at Heysham 1, Hunterston B and Sizewell B.
On 31 October 2005, the Company announced that the two units at Heysham 1 had
returned to service following boiler closure unit work and by 15 November 2005,
the two units at Hartlepool had returned to service. The net additional
unplanned loss related to these outages was 2.4 TWh.
Subsequent to its return to service, an issue with the generator stator on one
unit at Hartlepool resulted in a shutdown that is expected to last until March
2006.
Output from our coal-fired power station at Eggborough was 0.8 TWh during the
quarter and 2.5 TWh for the half year. For the quarter ended 30 September 2004,
the output was 1.6 TWh and for the six-month period ended 30 September 2004, the
output was 3.0 TWh. As Eggborough is operated primarily as a flexible mid-merit
plant, its output level is influenced by market prices, the Company's contracted
trading position and the extent to which it is operated as cover for unplanned
outages at the nuclear power stations. In addition, the output level reflects
planned maintenance work completed during the quarter.
Inspections carried out during the Unit 4 outage at Eggborough revealed evidence
of cracking on a number of the turbine blades. The affected turbine blades will
be removed and this unit is expected to return to service as planned, albeit
with a small reduction in capacity. Inspections of other units showed that
cracking was not widespread.
Flue Gas Desulphurisation (FGD) installation on Units 3 and 4 at Eggborough has
been completed and the plant was taken over from the contractors on 1 September
2005.
On 21 September 2005, the Department for Environment, Food and Rural Affairs
issued an update regarding the implementation of the Large Combustion Plant
Directive (LCPD) pending a formal decision by the Government expected before the
end of this year. The update indicated that the Government will apply emission
limit values to control emissions of sulphur dioxide, nitrogen oxides and
particulates from power stations in the UK from January 2008. The update
repeated the European Commission's view that existing plants whose waste gases
are discharged through a common stack should be considered as a single plant for
the purposes of the LCPD, and this has since been confirmed in writing by the
European Commission. Discussions with the Government are continuing but if this
interpretation is maintained, it means that there could be a requirement to
either modify the plant or materially restrict the operations of the two non-FGD
units at Eggborough from 2008 in order to comply with the proposed emission
limit values. Discussions are taking place with lending banks regarding their
2010 Option.
Operational Update
As part of its ongoing work to achieve improved operational performance, the
Company has developed a number of performance improvement processes and has
broadly completed the integration of those processes into the stations.
Implementation of the programme is progressing well, with completion expected in
2006/07. Effectiveness reviews of the processes are being undertaken, in
addition to the Company's ongoing monitoring of a number of key performance
indicators.
The Company's non-outage defect backlog has reduced by 27% for the half year as
a result of focusing on equipment reliability, work management and an improved
operational focus. Both nuclear reportable events and unplanned automatic trips
continue to show an improvement in the half year.
In the course of designing the Company's improvement programme, we have sought
input from external experts. Hartlepool received a positive assessment in the
quarter that builds on recent good assessments received at other stations.
The Company's human performance programme was also recognised as being at the
forefront of such programmes in Europe and we have recently conducted a workshop
for other European nuclear utilities.
We have continued to make good progress with the investment programme bringing
the total investment in plant, projects, major repairs and strategic spares to
GBP102m for the half year. The main investment in plant included additional
boiler safety work at Hartlepool and Heysham 1, turbine work at Heysham 1, low
pressure rotor refurbishment at Heysham 2 and Hunterston B, generator
transformer refurbishment at Hartlepool and cast iron replacement at Hinkley
Point and Hunterston B. Work continued on the planned reactor pressure vessel
head replacement at Sizewell B and FGD system and low nitrous oxide burners at
Eggborough. Investment has also been made in strategic spares, including
generator rotors and transformers.
Safety and Environmental Performance
A key priority of the Group is to manage the safety of our plant, people and the
general public. Lost time accidents for staff and contractors have increased
during the quarter and half year largely due to an increased number of accidents
involving contractors. A much greater focus has been put on helping and
supporting our contractor partners improve their safety performance. We remain
absolutely committed to safety and ensuring the safety of our staff, contractors
and the general public.
The environmental performance of the Group also continues to remain a
fundamental priority of the Company. Environmental performance indicators in the
year to date are ahead of the Group's expectations.
NDA Strategy
The Nuclear Decommissioning Authority published its draft strategy document and
has provided an opportunity for full and open consultation on the issue of
managing the UK's nuclear legacy. British Energy welcomes the opportunity to
take part in this consultation and has responded with its views to the NDA.
Quinquennial Review
The quinquennial review of our nuclear liabilities is underway and the results
of this review will be finalised in the New Year. The review may result in a
significant change in value of the nuclear liabilities due to changes in
strategy and cost estimates. However, as a result of the arrangements with the
NLF and Government, any change in value of the nuclear liabilities will be
offset in our balance sheet by an equal and opposite change in the value of the
NLF receivable.
TRADING REVIEW
Trading Position
The forward contract for baseload electricity for winter 2005/06 delivery closed
at GBP49.4/MWh on 30 September 2005, well below the peak of over GBP67/MWh seen
in mid-July. The forward market in electricity continues to show considerable
volatility, with baseload power for 2006/07 delivery trading between GBP45/MWh
and GBP55/MWh over the quarter. As at 9 December 2005, the Company had fixed
price contracts in place for approximately 95% of planned output for the
financial year 2005/06 at an average contract price of GBP32.5/MWh. This price
includes the impact of capped price arrangements of approximately 5 TWh at
around GBP30/MWh and the benefit of higher prices achieved as a result of
Eggborough taking advantage of the differential between peak and baseload
prices. This price excludes Balancing Services Use of System and other
electricity market participation charges of around GBP0.7/MWh and market costs
incurred through output variation and unreliability for planned output over the
remainder of the year, expected to be around GBP1.0/MWh. The Company intends to
progressively close out its remaining exposure to market prices for the
financial year 2005/06 in the shorter term markets subject to limits on trading
collateral. Good progress has been made in building the fixed price contract
position for 2006/07, with approximately half of planned output fixed to date at
a price of approximately GBP35/MWh. This price excludes the impact of capped
price arrangements of approximately 5 TWh at around GBP30/MWh.
Realised price was GBP25.0/MWh for the half year and GBP25.3/MWh for the
quarter.
Collateral
The Group's strategy for securing part of its income through fixed price
contracts means that in a volatile electricity market collateral requirements
are also volatile. The Group's ability to secure longer term certainty on its
income is limited by the amount of collateral and headroom available. The recent
increase in electricity prices to unprecedented levels has given rise to
increased collateral requirements, with a corresponding constraint on cash
headroom. The Group actively manages its use of collateral by selling
electricity through a number of routes to market including through its direct
supply business (to large industrial and commercial customers) which requires
minimal collateral and also through the use of financial products and low
collateral contractual structures. We have recently secured zero collateral
trading lines for up to 8 TWh over two years.
Collateral requirements increased by GBP58m from GBP216m at 31 March 2005 to
GBP274m at 2 October 2005. Collateral requirements as at 9 December 2005 were
GBP419m.
FINANCIAL REVIEW
Group Performance
The unaudited results for the quarter and half year are summarised as follows:
3 months ended 6 months ended 6 months ended
3 months ended 2 October 3 months 2 October 2005 2 October 6 months
2 October 2005 2005 ended Business 2005 ended
Business Re-measurement 2 October performance Re-measurement 2 October
performance GBPm 2005 GBPm GBPm 2005
GBPm Total Total
GBPm GBPm
Group revenue 487 5 492 1,008 (29) 979
EBITDA 106 - 106 227 (32) 195
Operating profit/(loss) 58 - 58 135 (32) 103
Financing charges (9) - (9) (22) - (22)
Profit/(loss) before tax 49 - 49 113 (32) 81
The discussion below focuses on the business performance results that are
adjusted to reflect the results before exceptional charges and other movements
arising from re-measurement. During the half year and quarter there were no
exceptional charges. For the half year and quarter the re-measurement
adjustments relate solely to the re-measurement impact of IAS 39. British Energy
believes that this adjusted measure provides a better indication of underlying
performance.
Revenue
Group revenue comprised generation sales, direct supply sales and miscellaneous
income. Revenue was GBP1,008m for the half year and GBP487m for the quarter.
Revenue reduced from the first quarter to the second quarter as a result of
reduced output.
The analysis of revenue is as follows:
3 months ended 6 months ended
2 October 2005 2 October 2005
GBPm GBPm
Group revenue
Wholesale generation sales 205 435
Direct supply sales net of energy supply costs 197 401
402 836
Energy supply costs recharged to customers 82 164
Miscellaneous income 3 8
Revenue 487 1,008
Wholesale generation sales includes revenue from Energy Purchases which cost
GBP9m for the half year and GBP5m for the quarter.
Output is analysed as follows:
3 months ended 6 months ended
2 October 2005 2 October 2005
TWh TWh
Nuclear 14.9 30.6
Eggborough 0.8 2.5
Total 15.7 33.1
The realised price for the half year was GBP25.0/MWh and GBP25.3/MWh for the
quarter.
Operating Costs
Operating costs were GBP873m for the half year and GBP429m for the quarter, as
detailed below.
3 months ended 6 months ended
2 October 2005 2 October 2005
GBPm GBPm
Fuel costs - nuclear 95 179
Fuel costs - fossil 16 69
Total fuel costs 111 248
Energy purchases 5 9
Materials and services 113 213
Staff costs 82 162
Depreciation 47 90
Amortisation 1 2
Other operating income (12) (15)
Energy supply costs 82 164
NLF Cash Sweep payment - -
Total operating costs 429 873
Total operating unit costs were GBP21.1/MWh for the half year and GBP21.8/MWh
for the quarter.
The component elements of the operating costs are discussed below.
Fuel Costs
Total fuel costs amounted to GBP248m for the half year and GBP111m for the
quarter. Nuclear fuel costs were GBP179m for the half year and GBP95m for the
quarter. The increase of GBP11m from the first quarter includes a GBP3m
reduction as a result of reduced output in the quarter offset by a higher back
end final core movement in provision of GBP14m. The value of back end final core
costs is linked to the amount of fuel that remains unburned in reactors at the
period end rather than being directly linked to the output of the period.
Eggborough fuel costs for the half year were GBP69m and GBP16m for the quarter.
The reduction from the first quarter reflects, in part, the reduced output at
the station but is also due to the Eggborough fuel costs including costs
attributable to carbon. Carbon costs are based on the market price of carbon at
the period end and for the half year were GBP22m, comprising a credit of GBP2m
for the quarter and costs of GBP24m for the first quarter.
The market price of CO2 allowances have decreased in the quarter from
approximately EUR25/tonne at 3 July 2005 to approximately EUR23/tonne at 2
October 2005. The cost of CO2 allowances impacts the marginal cost of coal and
gas generation.
Materials and Services
Materials and services costs comprise the operating expenses of the power
stations and support functions excluding fuel costs, staff costs and
depreciation. These costs were GBP213m during the half year and GBP113m during
the quarter. The increase in costs from the first quarter were mainly due to
additional investment expenditure incurred.
Staff Costs
Staff costs were GBP162m for the half year and GBP82m for the quarter and
included pension costs of GBP28m and GBP14m respectively.
Employer contributions to the pension scheme were GBP34m for the half year and
GBP17m for the quarter reflecting the impact of increased contributions agreed
as part of deficit repair and new salary sacrifice arrangements introduced from
1 April 2005.
Other Operating Income
The other operating income of GBP15m for the half year and GBP12m for the
quarter relates to utilisation, excluding revalorisation, of the net commodity
contracts provision, which was established on restructuring.
NLF Cash Sweep Payment
The NLF Cash Sweep percentage was 64.69% as at 2 October 2005, down from 64.99%
at 31 March 2005 as a result of the exercise of a number of the Company's
warrants. In accordance with the Group's accounting policy no accrual has been
made for any potential future NLF Cash Sweep payment that may be payable based
on the full year results. In accordance with the Government Contribution
Agreement, an accrual will be made for the weighted average NLF Cash Sweep
percentage payment applied to adjusted net cash flow as at 31 March 2006 to the
extent adjusted net cash flow arising from operations during the year is above
GBP290m plus posted collateral (subject to a GBP200m minimum) at 31 March 2006
Operating Profit
The Group operating profit was GBP135m for the half year and GBP58m for the
quarter.
Financing Charges
The total financing charges are analysed below:
3 months ended 6 months ended
2 October 2005 2 October 2005
GBPm GBPm
Revalorisation of nuclear liabilities 52 119
Revalorisation of nuclear liabilities receivable and NLF receivable (52) (119)
Revalorisation of fixed decommissioning obligation 2 6
Revalorisation of contracts provision 3 7
Total revalorisation 5 13
Net interest expense 6 13
Net credit to finance charge for pension liability (2) (4)
Total financing charges 9 22
Revalorisation of nuclear liabilities arises because nuclear liabilities are
stated in the balance sheet at current price levels, discounted at 3% per annum
real from the eventual payment dates. The revalorisation charge is the
adjustment that results from restating these liabilities to take into account
the effect of inflation in the period and to remove the effect of the discount
for the period.
A revalorisation credit arises in respect of movements in the value of nuclear
liabilities receivable and the NLF receivable to take account of the underlying
movement in nuclear liabilities.
Revalorisation charges arise in respect of the fixed decommissioning obligation
and the contracts provision to reflect the unwinding of the discount for the
half year and quarter.
IAS 39 and Contract Provisions
The total movements on the IAS 39 values and the net commodity contracts
provision established as part of the fair value exercise are analysed below:
IAS 39 Contract
values provision Total
GBPm GBPm GBPm
As at 1 April 2005 34 238 272
Charge/(credit) to the income statement 32 (3) 29
Revalorisation - 4 4
Increase in hedge reserve through the statement of recognised income
and expense 52 - 52
As at 3 July 2005 118 239 357
Credit to the income statement - (12) (12)
Revalorisation - 3 3
Decrease in hedge reserve through the statement of recognised income
and expense (2) - (2)
As at 2 October 2005 116 230 346
Following the adoption of IAS 39 at 1 April 2005, the opening balance of GBP34m
has risen by GBP82m to GBP116m. The effect on operating profit in the half year
has been a reduction of GBP32m with the balance of GBP50m being recognised
through the statement of recognised income and expense.
The contract provision relates to contracts outside the scope of IAS 39, which
were initially valued at the restructuring effective date of 14 January 2005.
The provision is being utilised over the lives of these contracts. The provision
has decreased by GBP8m in the half year.
Taxation
Income tax is calculated on the profit for the period, before taking account of
the income statement effect of any adjustments to the measurement and
classification of financial instruments required by IAS 39, at the anticipated
annual effective rate applicable to this profit. Any charge for the NLF Cash
Sweep payment included in the annual results will not be tax deductible and
therefore the anticipated annual effective rate is significantly more than the
standard rate of 30%. Adjustments to profit arising from the application of
measurement and classification rules for financial instruments contained in IAS
39 are tax effected at the standard rate of 30%. There is no current tax charge
in the period due to the availability of trading losses carried forward. The
charge of GBP36m before re-measurement and GBP46m after re-measurement in the
half year and GBP20m before and after re-measurement for the quarter consists of
deferred tax only.
Profit after Tax
As a result of the factors discussed above, the net profit for the period
attributable to equity shareholders was GBP67m before re-measurement and GBP45m
after re-measurement for the half year and GBP29m before and after
re-measurement for the quarter.
Earnings per Share (before Cash Sweep)
There was an earnings per share of 11.9p for the half year and 5.1p for the
quarter, based on the net profit for the period before the effect of
re-measurement divided by the weighted average number of ordinary shares in
issue during the period. After the effect of re-measurement, earnings per share
was 8.0p for the half year and 5.1p for the quarter.
The diluted earnings per share for the half year was 11.5p before the effect of
re-measurement and 7.7p after the effect of re-measurement and for the quarter
was 5.0p before and after the effect of re-measurement. The conversion rights of
the NLF Cash Sweep are not considered dilutive.
Actuarial Loss on Pensions
There has been one significant change in the actuarial assumptions adopted at 2
October 2005 compared with 31 March 2005 that mainly contributed to the
actuarial loss on pensions of GBP89m for the half year that has been recorded in
the statement of recognised income and expense. The discount rate used to value
the liabilities has changed from 5.5% per annum to 5.0% per annum in line with
market changes in the yield on long-dated corporate bonds over the period. The
effect of the change in the discount rate is to place a higher value on the
pension liabilities, resulting in a significant actuarial loss in the quarter.
Cash Flow and Net Debt
The operating cash inflow from operations was GBP150m for the half year. When
adjusted for the increase in restricted cash, capital expenditure, the exercise
of warrants and the costs associated with the sale of investments there was an
increase in total cash of GBP113m. The net debt has therefore reduced from
GBP220m at 31 March 2005 to GBP107m at 2 October 2005.
Future Reporting
On 24 October 2005, consent was received from the Group's bondholders to amend
the US GAAP reporting requirements of the bonds. This allows the Company to
cease reporting under US GAAP. As previously announced, the Company is taking
steps to permit it to de-register from the United States Securities and Exchange
Commission.
The next set of quarterly results to be presented will be for the quarter ending
1 January 2006.
Safe Harbour
Certain statements in this document are 'forward-looking' statements as defined
in Section 21E of the US Securities Exchange Act of 1934. Such forward-looking
statements include, among others:
- 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
operation; and
- other matters that are not historical facts concerning the Group's business
operations, financial condition and results of operations.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors which are in some cases beyond the Group's control and may
cause its 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
apply only as at the date hereof, the Company is claiming the benefit of the
safe harbour provision contained in Section 21E of the US Securities Exchange
Act of 1934.
NON-GAAP FINANCIAL MEASURES
Business Performance
Business performance excludes certain re-measurement items (see below) and is
presented as management believes that exclusion of these items provides readers
with a clear and consistent presentation of the underlying operating performance
of the Group's business.
Re-measurement
The impact of re-measurement reflects exceptional charges and other movements,
including the impact of IAS 39. The scope of IAS 39 includes all financial
instruments i.e. loans, trade receivables, payables, investments, cash and
derivatives, as well as certain commodity contracts. The standard requires that
all derivatives, including certain commodity contracts, are fair valued on the
balance sheet, with changes from re-measurement being recorded in the income
statement unless cash flow hedge accounting is applied.
Unrealised gains and losses in respect of commodity contracts are disclosed
separately as re-measurements. Realised gains and losses relating to these
contracts are included in business performance. Management considers that this
presentation best reflects the underlying performance of the business since it
distinguishes between the temporary timing differences associated with
re-measurement under IAS 39 rules and actual realised gains and losses.
Exceptional charges, by their nature, are not indicative of the underlying
operating performance of the Group.
For a reconciliation between the overall results and business performance and
details of re-measurement items, see the consolidated income statement.
Realised Price
Realised price is calculated by dividing revenue (before any re-measurement
impact, energy supply costs recharged to customers and miscellaneous income, and
net of energy purchase costs) by total output during the period. The adjustments
to revenue allow management and investors a better understanding of the net
price that customers are paying for our electricity.
Total Operating Unit Costs
Total operating unit costs are calculated by dividing the total operating costs
(before any re-measurement, energy supply costs recharged to customers and
energy purchase costs) by total output during the period.
EBITDA
EBITDA is operating profit before interest, income taxes, depreciation and
amortisation and has been presented both including and excluding the effects of
re-measurement. The Company has included information concerning EBITDA because
it believes that it is used by certain investors as one measure of the Company's
financial performance. EBITDA is not a measure of financial performance under
IFRS and is not necessarily comparable to similarly titled measures used by
other companies. EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in accordance
with IFRS) as a measure of liquidity.
CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS AND SIX MONTHS ENDED 2 OCTOBER 2005 (UNAUDITED)
3 months 3 months 6 months 6 months
ended ended 3 months ended ended 6 months
2 October 2 October ended 2 2 October 2 October ended 2 2 July
2005 2005 October 2005 2005 October 2004 to
Business Re- 2005 Business Re- 2005 31 March
performance measurement Total performance measurement Total 2005
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 2 487 5 492 1,008 (29) 979 499
Energy purchases (5) (4) (9) (9) - (9) (17)
Fuel costs (111) (1) (112) (248) (3) (251) (127)
Materials and services (113) - (113) (213) - (213) (82)
Staff costs (82) - (82) (162) - (162) (82)
Energy supply costs (82) - (82) (164) - (164) (73)
Other operating income/(costs) 12 - 12 15 - 15 (8)
Operating profit/(loss) before
depreciation and amortisation
(EBITDA) 106 - 106 227 (32) 195 110
Depreciation (47) - (47) (90) - (90) (40)
Amortisation (1) - (1) (2) - (2) (1)
Operating profit/(loss) 58 - 58 135 (32) 103 69
Financing (charges)/credits
Net revalorisation charges 3 (5) - (5) (13) - (13) (5)
Interest payable (13) - (13) (25) - (25) (10)
Interest receivable 7 - 7 12 - 12 5
Net credit to finance charges
for pension liabilities 2 - 2 4 - 4 1
Profit/(loss) before tax 49 - 49 113 (32) 81 60
Taxation 4 (20) - (20) (46) 10 (36) (19)
Net profit/(loss) for the period
attributable to equity
shareholders 29 - 29 67 (22) 45 41
Earnings/(deficit) per share
(p):
Basic 5 5.1 - 5.1 11.9 (3.9) 8.0 7.3
Diluted 5 5.0 - 5.0 11.5 (3.8) 7.7 7.0
The Income Statement for the period 2 July 2004 to 31 March 2005 represents the
trading results for the period from 15 January 2005 to 31 March 2005, the period
after the acquisition of British Energy Limited by British Energy Group plc.
CONSOLIDATED BALANCE SHEET
AS AT 2 OCTOBER 2005 (UNAUDITED)
Notes As at As at
2 October 2005 31 March 2005
GBPm GBPm
Assets
Non-current assets
Property, plant and equipment 1,692 1,686
NLF receivable 1,904 1,863
Nuclear liabilities receivable 2,097 2,131
Deferred income tax asset 441 429
Goodwill and intangible assets 372 376
Receivables due after more than one year 2 4
6,508 6,489
Current assets
Inventories 338 331
Nuclear liabilities receivable 188 181
Trade and other receivables 289 327
Cash and cash equivalents 290 235
Restricted cash 279 221
Financial instruments - commodity contracts 13 -
1,397 1,295
Total assets 7,905 7,784
Liabilities
Current liabilities
Borrowings (50) (50)
Trade and other payables (405) (378)
Nuclear liabilities (188) (181)
Provisions for other liabilities and charges (161) (230)
Financial instruments - commodity contracts (120) -
(924) (839)
Non-current liabilities
Borrowings (626) (626)
Pension fund liability 6 (459) (381)
Provision for nuclear liabilities (1,904) (1,863)
Provisions for other liabilities and charges (112) (108)
Nuclear liabilities (2,097) (2,131)
NLF liabilities (206) (210)
Financial instruments - commodity contracts (9) -
Deferred income (5) (5)
(5,418) (5,324)
Total liabilities (6,342) (6,163)
Net assets 1,563 1,621
Equity
Called up equity share capital 57 56
Share premium 20 -
Other reserves 767 767
Hedge reserve (56) -
Warrant reserve 38 51
Retained earnings 737 747
Total equity 1,563 1,621
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE THREE AND SIX MONTHS ENDED 2 OCTOBER 2005 (UNAUDITED)
3 months ended 6 months ended 2 July 2004 to
2 October 2005 2 October 2005 31 March 2005
GBPm GBPm GBPm
Gains/(losses) on hedges recognised for the period 2 (50) -
Actuarial gains/(losses) on retirement benefits for the 83 (89) 82
period
Tax on items taken directly to equity for the period (26) 41 (25)
Net income/(expense) recognised directly in equity for the 59 (98) 57
period
Adjustment for the implementation of IAS 39 after tax at 1 - (15) -
April 2005
Net income/(expense) recognised directly in equity 59 (113) -
Profit for the period 29 45 41
Total recognised income and expense 88 (68) 98
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE AND SIX MONTHS ENDED 2 OCTOBER 2005 (UNAUDITED)
Called up
equity
share Other Hedge Warrant Share Retained Total
capital reserves reserve reserve premium earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 April 2005 56 767 - 51 - 747 1,621
Adjustment for the
implementation of - - (15) - - - (15)
IAS 39 after tax at
1 April 2005
Net income/(expense) - - (42) - - (115) (157)
recognised directly
in equity
Share based payments - - - - - 1 1
Profit for the period - - - - - 16 16
Exercise of warrants 1 - - (9) 13 - 5
Balance at 3 July 2005 57 767 (57) 42 13 649 1,471
Net income/(expense) - - 1 - - 58 59
recognised directly
in equity
Share based payments - - - - - 1 1
Profit for the period - - - - - 29 29
Exercise of warrants - - - (4) 7 - 3
Balance at 2 October 2005 57 767 (56) 38 20 737 1,563
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED 2 OCTOBER 2005 (UNAUDITED)
3 months ended 6 months ended 2 July 2004 to
2 October 2005 2 October 2005 31 March 2005
GBPm GBPm GBPm
Operating activities
Operating profit for the period 58 103 69
Amortisation charges 1 2 1
Depreciation 47 90 40
Loss on disposal of property, plant and equipment - 1 -
IAS 39 movement - 47 -
Movement in other provisions (14) (14) 19
Interest paid (17) (29) (12)
Interest received 10 16 3
Regular contributions to NLF (5) (17) (5)
(Increase)/decrease in inventories (3) (7) 23
Decrease in trade and other receivables 20 32 65
(Increase)/decrease in restricted cash (24) (58) 69
Increase/(decrease) in trade payables and other payables 18 (16) (84)
Net cash inflow generated from operations 91 150 188
Cash flows from investing activities
Net cash acquired with subsidiary - - 113
Purchases of property, plant and equipment (55) (97) (35)
Purchases of intangible assets (1) (3) -
Proceeds from disposal of property - - 7
Net cash used in investing activities (56) (100) 85
Cash flows from financing activities
Exercise of warrants 3 8 -
Repayments of borrowings - - (28)
Share issue expense - - (10)
Proceeds from sale of own shares - - 3
Costs associated with sale of investments (3) (3) (3)
Net cash used in financing activities - 5 (38)
Net change in cash and cash equivalents 35 55 235
Cash and cash equivalents at beginning of the period 255 235 -
Cash and cash equivalents at the end of the period 290 290 235
The Statement of Cash Flows for the period 2 July 2004 to 31 March 2005
represents the trading cash flows for the period from 15 January 2005 to 31
March 2005, the period after the acquisition of British Energy Limited by
British Energy Group plc, except the financing category which, prior to the date
of the acquisition, also reflects the cash flows from the issue of equity by the
Company following its incorporation.
Notes to the financial statements
1. Basis of Preparation
These interim financial statements have been prepared on a basis consistent with
International Financial Reporting Standards (IFRS) in issue that are effective
or available for early adoption at the Group's first annual reporting date, 31
March 2006, but do not include all the disclosures in IAS 34 on interim
reporting. Based on these IFRS, the Board of Directors has made assumptions
about the accounting policies expected to be adopted when the first IFRS annual
financial statements are prepared for the year ending 31 March 2006. The interim
financial statements require management to make judgements, estimates and
assumptions that affect the application of policies and reported amounts of
assets and liabilities, income and expenses.
The accounting policies are consistent with those that the Directors intend to
use in the next annual financial statements as set out in the 'Restatement of
Results for Transition to International Financial Reporting Standards' as
published on 21 September 2005. The Group's proposed accounting policies were
included in the 'Results for the Quarter Ended 3 July 2005'. Notwithstanding
this, the IFRS that will be effective or available for voluntary early adoption
in the annual financial statements for the year ending 31 March 2006 are subject
to change and to the issue of additional interpretations and therefore cannot be
determined with certainty.
This is the first set of interim results for the first six months of the
financial year for British Energy and therefore no comparative information is
provided.
To assist investors to compare the underlying financial performance of the
Group, 'business performance' income statement figures are shown before the
impact of exceptional charges and other movements arising from re-measurement.
For the first six months the adjustments relate solely to the re-measurement
under IAS 39. The definition of 'business performance' is given in the Non-GAAP
Financial Matters section of this report.
References to 'British Energy' or the 'Company' are to British Energy Group plc.
References to the 'Group' are to the Company and its subsidiaries.
The financial statements for the three months and six months ended 2 October
2005 are unaudited but have been reviewed by the auditors and their report to
the Company is set out below.
These interim financial statements were approved by the Board of Directors on 13
December 2005.
2. Output, Revenue and Segment Information
Through consideration of our product, geographic area and regulatory
environment, the Group has concluded that it has one business, being the
generation and sale of electricity in the UK, resulting in one operating segment
of Generation and Trading.
3 months 6 months 15 January
ended ended to
2 October 2 October 31 March
2005 2005 2005
TWh TWh TWh
Output
Nuclear power stations 14.9 30.6 14.3
Coal-fired power station 0.8 2.5 2.5
15.7 33.1 16.8
3 months 3 months 6 months 6 months
ended ended 3 months ended ended 6 months
2 October 2 October ended 2 2 October 2 October ended 2 2 July
2005 2005 October 2005 2005 October 2004 to
Business Re- 2005 Business Re- 2005 31 March
performance measurement Total performance measurement Total 2005
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue
Wholesale generation sales 205 5 210 435 (29) 406 250
Direct supply sales
net of energy supply costs 197 - 197 401 - 401 170
402 5 407 836 (29) 807 420
Energy supply costs
recharged to customers 82 - 82 164 - 164 73
Miscellaneous income 3 - 3 8 - 8 6
487 5 492 1,008 (29) 979 499
Wholesale generation sales includes revenue from Energy Purchases which cost
GBP5m and GBP9m for the three and six months ended 2 October 2005 respectively
(2004/05 GBP17m).
3. Net Revalorisation Charges
3 months 6 months 2 July 2004
ended ended to
2 October 2 October 31 March
2005 2005 2005
GBPm GBPm GBPm
Revalorisation of nuclear liabilities
- changes in price levels 21 56 23
- discharge of discount for period 31 63 27
Revalorisation of nuclear liabilities receivable (28) (66) (29)
Revalorisation of NLF receivable (24) (53) (21)
Revalorisation of contracts provision 3 7 2
Revalorisation of fixed decommissioning obligations 2 6 3
Net revalorisation charges 5 13 5
4. Taxation
There is no current tax charge in the period due to the availability of trading
losses carried forward. The charge for the three and six months of GBP20m and
GBP36m before re-measurement and GBP20m and GBP46m after re-measurement
respectively consists solely of deferred tax.
5. Earnings Per Share
The basic earnings per share for the period has been calculated by dividing the
profit after taxation by the weighted average number of ordinary shares in issue
during the period. The diluted earnings per share calculation is based on the
weighted average of 566 million and 565 million ordinary shares in issue
together with the dilutive potential of 17 million and 16 million ordinary
shares in respect of warrants for the three and six months respectively. The
effect of the NLF Cash Sweep is not considered to be dilutive. The adjustment
mechanism for the NLF Cash Sweep percentage set out in the Contribution
Agreement is designed such that the shareholders' interest in the Group after
taking account of the NLF Cash Sweep remains consistent. For example, in the
event that a NLF Cash Sweep payment is made without a corresponding dividend
then the NLF Cash Sweep percentage is diluted as if shareholders had reinvested
a corresponding amount as new equity in the Group.
3 months 3 months 6 months 6 months
ended ended ended 2 ended 2
2 October 2 October October October 31 March 31 March
2005 2005 2005 2005 2005 2005
Basic Diluted Basic Diluted Basic Diluted
Net profit for the period (GBPm) 29 29 45 45 41 41
Weighted average share capital
(number of shares, million) 566 583 565 581 561 579
6. Pension Costs
There has been one significant change in the actuarial assumptions adopted at 2
October 2005 compared with 31 March 2005. The discount rate used to value the
liabilities has changed from 5.5% per annum to 5.0% per annum in line with
changes in the yield on long-dated corporate bonds over the period. The effect
of the change in the discount rate is to place a higher value on the pension
liabilities, giving rise to a significant actuarial loss over the period.
7. Contingent Assets
The Group has certain contingent assets as a result of its disposal of its 82.4%
interest in Bruce Power LP. In addition to the consideration payable by the
consortium under the master purchase agreement, up to a further C$100m was
payable to British Energy contingent upon the restart of two of the Bruce A
units under a trust agreement (the Trust Agreement) entered into on the same
date. Had the first unit restarted by 15 June 2003, C$50m would have been
released to British Energy and an additional C$50m would have been released to
British Energy had the second unit restarted by 1 August 2003. An amount of C$5m
was to be deducted from the C$50m payable in respect of each unit for its
failure to restart by the scheduled restart date or by the first day of each
successive calendar month following the scheduled restart date. The Group
received C$20m on 22 March 2004 and C$10m on 25 May 2004 in partial
consideration under the Trust Agreement. British Energy commenced arbitration
proceedings in Ontario against the Ontario Provincial Government (the Province)
in December 2004 seeking the payment of additional consideration under the Trust
Agreement on the basis that Bruce A Units 3 and 4 restarted earlier than the
dates claimed by the Province. No additional amounts appear on our balance sheet
at 2 October 2005 because of uncertainties regarding their realisation. The
amounts recoverable in respect of the restarted units will be substantially
lower than the maximum C$100m but the amounts and timing of the payments have
still to be confirmed.
8. Contingent Liabilities
On 12 February 2004 British Energy Limited received a notice of warranty claims
from the consortium which purchased the Group's 82.4% interest in Bruce Power LP
alleging breach of certain warranties and representations relating to tax and to
the condition of certain plant at the Bruce Power Station.
The principal tax claim relates to the treatment of expenditure at the Bruce
Power Station during the period of the Group's part ownership and is currently
being considered by the Canadian tax authorities. The treatment proposed by
British Energy could result in a rebate of a material amount of tax to the Group
that has not been recognised in the financial statements. The consortium claims
that allowance of the expenditure for that period would cause it to lose future
deductions. British Energy has rejected the tax claim and expects to defend it
if it is pursued further. The Group is confident that the amount of the claim
should not, in any event, materially exceed the amount of the rebate, and that
the tax claim should have no material cash flow impact on the Group.
The claim relating to the condition of the plant is based upon alleged erosion
of certain parts of the steam generators, including the support plates, through
which boiler tubes pass, which it is alleged resulted in an extended outage of
one unit at the plant to carry out repair works and loss of revenues and costs
of approximately C$64.5m. The consortium also claims that the alleged erosion
may reduce the operating life of the unit and/or result in further repairs
involving further losses. British Energy has rejected the claim and expects to
defend it if it is pursued further.
Under the agreement with the consortium C$20m is retained in trust to meet any
representation and warranty claims, and this may be retained pending agreement
or determination of the claims.
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
on a going concern basis.
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.
9. Non-adjusting Post Balance Sheet Events
On 25 November 2005, the Company announced that due to a number of recent
equipment issues that have resulted in unplanned outages at the Company's power
stations, the Company has revised its estimate of nuclear output for the
financial year 2005/06. Based on current information, the Company expects that
nuclear output for the financial year 2005/06 is unlikely to exceed 61 TWh.
On 21 September 2005, the Department for Environment, Food and Rural Affairs
issued an update regarding the implementation of the Large Combustion Plant
Directive (LCPD) pending a formal decision by the Government expected before the
end of this year. The update indicated that the Government will apply emission
limit values to control emissions of sulphur dioxide, nitrogen oxides and
particulates from power stations in the UK from January 2008. The update
repeated the European Commission's view that existing plants whose waste gases
are discharged through a common stack should be considered as a single plant for
the purposes of the LCPD, and this has since been confirmed in writing by the
European Commission. Discussions with the Government are continuing but if this
interpretation stands, it means that there could be a requirement to either
modify the plant or materially restrict the operations of the two non-FGD units
at Eggborough from 2008 in order to comply with the proposed emission limit
values.
INDEPENDENT REVIEW REPORT TO BRITISH ENERGY GROUP PLC
Introduction
We have been instructed by the company to review the financial information
contained in the interim report which comprises the consolidated income
statement, consolidated balance sheet, consolidated statement of recognised
income and expense, consolidated statement of changes in equity, consolidated
statement of cash flows, and associated notes. We have read the other
information contained in the quarterly report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority.
As disclosed in note 1, the next annual financial statements of the group will
be prepared in accordance with accounting standards adopted for use in the
European Union. This interim report has been prepared in accordance with the
basis set out in Note 1.
The accounting policies are consistent with those that the directors intend to
use in the next annual financial statements. As explained in note 1, there is,
however, a possibility that the directors may determine that some changes are
necessary when preparing the full annual financial statements for the first time
in accordance with accounting standards adopted for use in the European Union.
The IFRS standards and IFRIC interpretations that will be applicable and adopted
for use in the European Union at 31 March 2006 are not known with certainty at
the time of preparing this interim financial information.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the three months
and six months ended 2 October 2005.
PricewaterhouseCoopers LLP
Chartered Accountants
Edinburgh
13 December 2005
Notes:
(a) The maintenance and integrity of the British Energy Group plc website is the
responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the quarterly report
since it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
GLOSSARY
AGR (Advanced Gas-cooled Reactor)
The second generation of gas-cooled nuclear reactor built in the UK.
Baseload Generation
Mode of operation of a power station at a constant high level of output for a
sustained period of time to assist in meeting minimum national demand.
BEDL
British Energy Direct Limited.
BETTA
British Electricity Transmission and Trading Arrangements.
Bruce
The Bruce A and B nuclear power stations in Ontario, Canada.
Decommissioning
The process whereby a nuclear power station is shut down at the end of its
economic life, eventually dismantled, and the site made available for other
purposes.
Energy Supply Costs
These mainly comprise the costs incurred for the use of the distribution and
transmission systems, recovered through revenue, and accrued costs of Renewable
Obligation Certificates (ROCs).
EPL
Eggborough Power Limited.
ETS
Emissions Trading Scheme.
FGD (Flue Gas Desulphurisation)
Equipment fitted to coal-fired power stations to reduce sulphur dioxide
emissions.
Market Price
The price for annual forward baseload contracts.
Materiel Condition
A term used by nuclear operators, particularly in the United States, in relation
to nuclear power stations, and used to describe the physical condition of plant
and equipment and the condition of operating procedures, engineering drawings,
specifications and manuals (taking safety, maintenance and plant reliability
into consideration).
MW (megawatt): MWh (megawatt-hour)
One megawatt equals 1,000 kW: one megawatt-hour represents one hour of
electricity consumption at a constant rate of 1 MW.
NDA
Nuclear Decommissioning Authority.
NLF
An independently administered fund into which the Group makes contributions to
cover all qualifying uncontracted nuclear liabilities including costs of
decommissioning nuclear power stations and PWR back end fuel costs.
Non-Outage Defect Backlog
Total of outstanding plant defects which are work requests that have been
partially accessed by maintenance, or are still awaiting action after screening
by the station Work Review Groups based on a priority weighting set by the
Nuclear Performance Review Committee.
Outage (Planned and Unplanned)
A period during which a reactor is shut down. The periodic shutdown of a reactor
including for maintenance, inspection and testing or, in some cases, for
refuelling is known as a planned outage. In the UK, some planned outages are
known as statutory outages and are required by the conditions attached to the
nuclear site licence needed to operate the station. Unscheduled shutdown of a
reactor for a period is known as an unplanned outage.
PiP
The Performance Improvement Programme.
PWR (Pressurised Water Reactor)
The most recent type of nuclear reactor to be constructed in the UK which uses
pressurised water as both the coolant and the moderator.
Quinquennial Review
The five-yearly review of the assumptions underlying the Group's provision for
certain nuclear liabilities.
Renewable Obligation Certificates
Eligible renewable generators receive Renewable Obligation Certificate (ROCs)
for each MWh of electricity generated. These certificates can then be sold to
suppliers, in order to fulfil their renewables obligation.
Restructuring
The restructuring of the Group completed on 14 January 2005.
Restructuring Effective Date (RED)
14 January 2005.
Revalorisation
Revalorisation arises because nuclear liabilities are stated in the balance
sheet at current price levels, discounted at 3% per annum from the eventual
payment dates. The revalorisation charge is the adjustment that results from
restating these liabilities to take into account the effect of inflation in the
year and to remove the effect of one year's discount as the eventual dates of
payment become one year closer. Revalorisation charges arise in respect of the
fixed decommissioning obligation to reflect the unwinding of the discount for
the period. A revalorisation credit arises in respect of movements in the value
of nuclear liabilities and the NLF receivable to take account of the underlying
movement in nuclear liabilities.
Statutory Outage
The planned shutdown of nuclear reactors for regulatory inspection and
maintenance.
TW (terawatt): TWh (terawatt-hour)
One terawatt equals 1,000 GW: one terawatt-hour represents one hour of
electricity consumption at a constant rate of 1 TW.
Unit Capability Factor
The percentage of maximum energy generation that a plant is capable of supplying
to the electrical grid, limited only by factors within the control of plant
management.
Unplanned Capability Loss Factor
Unplanned capability loss factor is defined as the ratio of the unplanned energy
losses during a given period of time, to the reference energy generation,
expressed as a percentage.
WANO
The World Association of Nuclear Operators. A nuclear industry organisation
which encourages peer review and collects and shares operating data worldwide
which is then used to benchmark performance.
Warrants
Warrants entitling the holder to subscribe for shares in British Energy Group
plc.
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: December 13 2005 BRITISH ENERGY GROUP PLC
By:____John Searles____
Name: John Searles
Title: Director - Investor Relations