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 12, 2002
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: Interim Results
dated December 12, 2002
Exhibit No. 1
BRITISH ENERGY plc
INTERIM RESULTS
(1 April - 30 September 2002)
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RESTRUCTURING CONTEXT
Having reviewed the longer term prospects for the business, the Board announced
on 5th September 2002 that the Company had initiated discussions with the UK
Government with a view to seeking immediate financial support and to enable a
longer term restructuring to take place.
On 9th September 2002, the Government granted the Company a credit facility of
up to GBP410m to provide working capital and trading collateral for the
Company's immediate requirements and to stabilise its trading position in the UK
and North America. On 26th September 2002, the Government agreed to a revised
facility for an amount up to GBP650m. Since that time, the Board has been
working closely with its advisors to try to secure a solvent restructuring of
the Company.
On 28th November 2002, the Government confirmed its intention subject to certain
terms and conditions to support the Company's proposals for restructuring
intended to achieve the long term financial viability of the British Energy
Group. However, given the magnitude of the financial problems facing the
Company, the proposed restructuring will require certain significant creditors
to compromise their claims and is expected to lead to a very significant
dilution of the interests of existing shareholders. The Government also agreed,
again subject to certain terms and conditions, to extend the credit facility
until 9th March 2003 in order to provide financial stability and security whilst
British Energy seeks the support of these significant creditors.
The Board believes that the proposed restructuring offers the best available
opportunity to achieve the long term financial viability of the British Energy
Group. However, the proposed restructuring requires the Company to reach, prior
to 14th February 2003, formal standstill agreement with a large number of
creditors with respect to diverse financial interests, as well as a successful
disposal of British Energy's interests in Bruce Power (completion to take place
by 14th February 2003) and AmerGen (sale to be agreed by 30th June 2003) and
approvals from numerous bodies including the European Commission.
If such agreements cannot be reached, the required approvals are not forthcoming
within the timescales envisaged, the assumptions underlying the restructuring
proposal are not fulfilled or the conditions to the restructuring are not
satisfied or waived, the Company may be unable to meet its financial obligations
as they fall due. Therefore the Company may have to take appropriate insolvency
proceedings, in which case the distributions, if any, to unsecured creditors may
represent only a small fraction of their unsecured liabilities and there is
unlikely to be any return to shareholders.
Set against this background, British Energy has a common interest with the
Government in maintaining safety and security of electricity supply.
Note that the results that follow should be read in the context of the Company's
announcement of 28th November 2002, a copy of which is attached herewith.
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KEY POINTS FOR 6 MONTHS TO 30th SEPTEMBER 2002
- Loss before tax of GBP337m (GBP124m pre exceptional items) primarily due to
exceptional items, lower output (principally in the UK) and lower UK
electricity prices.
- Exceptional items totalling GBP213m (net) relating to the write down of the
decommissioning fund and shares held in employee trusts, provision for
onerous electricity contracts and restructuring costs off-set by a credit in
respect of cash amounts previously received under the Nuclear Energy
Agreement (NEA).
- UK nuclear output down to 30.33 TWh following unplanned outages at Torness
and Dungeness B. As a result, the UK nuclear output target for 2002/03 was
reduced from 67 TWh to 63 +/- 1TWh.
- UK nuclear unit operating costs of 1.85 p/kWh compared with 1.74p/kWh last
year due to lower output more than off-setting lower costs.
- UK achieved price of 2.02p/kWh compared to 2.08p/kWh last year primarily
due to the increase in volume of Direct Sales largely off-setting the 8%
fall in station gate prices to 1.73p/kWh.
- The revised NEA negotiated with Scottish Power and Scottish and Southern
Energy has received regulatory approval.
- Operating contribution from AmerGen and Bruce of GBP81m (post minorities).
- Discussions progressing regarding sales of AmerGen and Bruce
- No interim dividend.
OVERVIEW
Key financials, including exceptional items, are shown below:
6 months ended 6 months ended Year ended
30 Sep 2002 30 Sep 2001 31 Mar 2002
GBPm GBPm GBPm
Turnover 909 929 2,049
Operating (loss)/ profit (38) 70 (281)
Loss before tax (337) (15) (493)
"Business performance" figures excluding exceptional items are shown below:
6 months ended 6 months ended Year ended
30 Sep 2002 30 Sep 2001 31 Mar 2002
GBPm GBPm GBPm
Turnover 868 929 2,049
Operating (loss)/profit (26) 72 231
(Loss)/profit before tax (124) (17) 42
Net operating cashflow (71) 63 155
Net debt (966) (880) (859)
UK nuclear unit cost (p/kWh) 1.85 1.74 1.67
STATEMENT BY ADRIAN MONTAGUE, CHAIRMAN
I take up the position of Chairman at a bleak point in our Company's fortunes.
The combination of high fixed costs for our nuclear stations and low power
prices, coupled with our lack of tied retail outlets and a high level of
unscheduled outages, has inflicted terrible damage on our Company. These factors
lay behind the Board's decision to seek Government assistance on 5th September,
and the discussions with Government since then which culminated in the
restructuring proposals announced on 28th November, the date on which I replaced
Robin Jeffrey as your Chairman. I would like to thank him for his commitment and
contribution to the Company over the recent years.
The restructuring proposals agreed with the Government offer our Company the
opportunity to start on the long path to recovery. It will involve considerable
sacrifice on the part of the Company's major creditors and shareholders. However
these creditors have yet to agree to participate in the restructuring scheme and
- if they do not, or if the restructuring cannot proceed for some other reason -
the Company is likely to have to seek the protection of administration. The next
few months will be decisive.
If the restructuring proceeds, it will involve a long period of retrenchment.
Our future efforts are likely to be focused on the UK business while we look to
dispose of our successful investments in North America. Negotiations are already
underway to achieve this. The value of our domestic generating plant will have
to be reviewed, almost certainly downwards. Continued efforts will be required
to sustain and enhance nuclear safety performance while at the same time
achieving operating efficiencies. We will also look to achieve savings
reflecting the refocusing of the business on UK operations. Much of the upside
in recovery will go to build up funds to meet nuclear liabilities. However, as a
result of the Government's agreement to underwrite these liabilities, the
Company's exposure to these costs will be limited to a more manageable level.
Nonetheless, your Board hopes, in time, that the Company will re-emerge as the
UK's least cost major generator, able to compete effectively with vertically
integrated producers and offering the greenhouse gas-free energy that society is
coming to value increasingly.
The immediate future is uncertain, but there is no diminution in the dedication,
enthusiasm and capability of British Energy's staff, whose commitment to the
Company and to the case for nuclear energy has never wavered. During these
troubling times they are to be commended for continuing to ensure that our
plants operate with safety as our number one priority, as well as helping to
maintain security of supply.
In the current circumstances, the Board has decided that no dividend will be
payable for the period.
STATEMENT BY KEITH LOUGH, FINANCE DIRECTOR
Background
British Energy had for some while been seeking to renegotiate its fuel contracts
with BNFL to try and significantly reduce its fixed cost base. BNFL delivered,
on 3rd September 2002, its final proposal to British Energy, but the terms that
they offered fell short of those which British Energy required. Having reviewed
the longer-term prospects of the group, the Board concluded that it should not
drawdown on existing undrawn loan facilities and decided that there was no
alternative but to seek Government support. On 5th September 2002, British
Energy announced that it had initiated discussions with Government with a view
to seeking immediate financial support and to enable a longer term restructuring
to take place.
On 9th September the Government announced that it would grant the Company a
facility of up to GBP410m to provide working capital and to allow the Company to
stabilise its trading position in the UK and North America. The original
maturity date of 27th September for the facility was subsequently extended to
29th November and increased to an amount up to GBP650m.
The Government notified its initial financial support and its extension of the
facility to the European Commission on 9th and 27th September. On 27th November,
the European Commission granted approval of this aid.
An Extraordinary General Meeting was held on 4th November 2002 at which
shareholders approved an ordinary resolution of the Company to increase the
group's borrowing limit, as set out in the Company's Articles of Association, to
GBP1.6 billion.
On 22nd November, Greenpeace were granted leave to commence proceedings for a
judicial review of the rescue aid inherent in the facility.
On 28th November, the Government announced that it would support the
restructuring proposed by the Company subject to various approvals and
conditions and that it would extend the credit facility until 9th March 2003. If
the necessary agreements cannot be reached, the required approvals are not
forthcoming within the timescales envisaged, the assumptions underlying the
restructuring proposal are not fulfilled or the conditions to the restructuring
are not satisfied or waived, the Company may be unable to meet its financial
obligations as they fall due. Therefore the Company may have to take appropriate
insolvency proceedings, in which case the distributions, if any, to unsecured
creditors may represent only a small fraction of their unsecured liabilities and
there is unlikely to be any return to shareholders. The results that follow
therefore need to be viewed against this background.
First Half Performance
Output was lower than expected due to unplanned outages at Torness and Dungeness
B. This led to a revision in the UK nuclear output target to 63 +/- 1 TWh as
announced in August and increased cost per unit for the period of 1.85p/kWh.
Our North American plants have performed well with both Bruce Power and AmerGen
(our joint venture with Exelon) providing positive contributions but Bruce
Power's performance was affected by planned outages during the period.
There were a number of pre-tax exceptional items in this period:
1. write down of GBP103m of the decommissioning fund as a result of general
equity market conditions
2. write down of GBP98m of British Energy shares held in employee trusts
reflecting deterioration of the long term prospects of the Company and
subsequent fall in the share price
3. provision of GBP46m for onerous long term electricity contracts
reflecting continued low market prices
4. provision of GBP7m for restructuring costs and
5. credit of GBP41m in respect of cash amounts previously received under
the NEA.
Outlook
In line with the Company's statement of 28th November, during the period to 9th
March 2003 the Board will be working closely in conjunction with its advisors to
implement a successful restructuring of the Company within the principles
accepted by the Government.
Discussions are continuing regarding the sale of our North American assets,
being AmerGen and Bruce Power. We announced in September that we were
considering the possible sale of AmerGen. Progress has been made towards the
sale. Under the restructuring proposals, the sale of AmerGen must be agreed by
30 June 2003.
Following these disposals, British Energy will be a merchant generator in the UK
market with 9600 MW of nuclear plant and 2000MW of coal-fired plant at
Eggborough. Output will continue to be sold directly to industrial and
commercial companies in the wholesale power market or under arrangements with
energy supply companies.
The Board intends to reduce the Group's exposure to wholesale electricity prices
in the UK. The revised contracts, which have been agreed in principle with BNFL,
will provide a partial hedge against market prices in respect of approximately
40% of British Energy's total electricity output (including Eggborough and
Sizewell). In addition, the Board intends to implement a trading strategy which
will seek to enter into short and medium-term power-sale contracts with market
counterparties and with industrial and commercial customers, to hedge the
majority of its remaining output.
Whilst we are targeting annual output from the nuclear fleet of approximately 69
TWh (82 per cent. load factor), the Board considers that a prudent judgement of
the normal level of output from these plants on an annual basis should be 67 TWh
(80 per cent. load factor).
As a result of the restructured BNFL contracts, cash operating costs (including
maintenance capital expenditure and overheads (including corporate overheads))
in the nuclear operations are expected to be approximately 1.45p/kWh (in 2002/3
prices) assuming output of 67 TWh and at electricity prices of 1.6p/kWh (in
2002/3 prices).
Taking account of the requirements of the restructured business, and its refocus
on UK operations, the Board will review the corporate overheads and take action
as required to ensure an efficient and cost effective business.
Current Trading
Market conditions remain extremely challenging and have adversely impacted both
ourselves and other players as has been well publicised recently. The Company
released its output statement for November on 4th December. This showed that the
UK nuclear plants remain on track to achieve the revised target of 63 +/- 1 TWh
by 31st March 2003 and that AmerGen's and Bruce Power's output remain in line
with plan.
In November, it was announced that both OFGEM and the European Commission had
approved the renegotiation of the NEA with Scottish Power and Scottish and
Southern Energy.
GROUP FINANCIAL SUMMARY
This summary is based on "business performance" figures which exclude
exceptional items (as described in note 1 to the accounts).
Turnover
Turnover was GBP868m as compared with GBP929m for the same period last year.
This is primarily due to a combination of falling prices in the UK and an
increased number of outages both in the UK and North America.
Operating profit
Operating profit was GBP98m lower than for the same period last year. The main
reasons for this are set out in the table below:
UK Bruce AmerGen Group
GBPm GBPm GBPm GBPm
Electricity prices (including UK supply costs) (42) 27 (15)
Output (see note) (49) (28) (77)
Other operating cost changes (6) (10) (4) (20)
Foreign exchange rates (2) (2)
Other movements 11 5 16
Change in operating profit (86) (8) (4) (98)
Note: output includes an estimate of the pro-rata effect of Bruce ownership
being only 4 1/2 months to September 2001.
Financing charges and Amounts written off investments
As at 30th September 2002 the market value of the decommissioning fund (GBP332m)
was lower than the value (GBP435m) that would have been derived from
revalorising the cost of the investment. As a result, an exceptional charge of
GBP103m has been recognised to restate the decommissioning fund receivable to
market value. Of this GBP103m, GBP82m represents the write-off of previous
revalorisation and has been treated as an exceptional financing charge. The
balance of GBP21m has been included in "Amounts written off investments" in the
profit and loss account.
Other exceptional items
- Onerous trading contracts
The Group has certain pre-NETA contracts which are excluded from the wholesale
and direct supply portfolios. 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 and a provision has been made to reflect the future
discounted losses that are expected under the terms of these contracts. An
exceptional charge of GBP46m has been made in the period to make further
provision for these long term contracts.
- Own shares held
The market value of shares held by employee trusts at 30th September 2002 was
GBP5m compared to a book value of GBP103m. As the long term prospects of the
Company have deteriorated significantly, 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 GBP98m has been recognised within
"Amounts written off investments" in the profit and loss account.
- Restructuring costs
A charge of GBP7m has been made in respect of costs incurred on advisory and
other costs associated with restructuring the Company's activities.
- Nuclear Energy Agreement
The Company has agreed revised terms for the electricity supply agreement with
Scottish Power and Scottish and 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.
Taxation
Taxation has been calculated on the loss for the six months to 30th September
2002 to take account of an allocation of net permanently disallowable items and
the higher rate of tax payable on US and Canadian taxable profits, and includes
the share of discount unwinding on deferred tax applicable to the period.
Economic value of UK generation fixed assets and stocks
In light of the current uncertainty surrounding the operations and prospects of
the Company, the Directors have significant doubt as to whether the assumptions
and estimates used to determine the carrying values of the Company's UK
generation fixed assets and stocks are now the most appropriate. However, the
Directors do not believe that reasonable assumptions and estimates can be made
for these items given the current uncertainty regarding the Company's financial
position and as such have presented the UK generation fixed assets and stocks in
the interim accounts on a basis consistent with that used in the preparation of
British Energy plc group financial statements for the year ended 31st March
2002. The balance sheet drawn up at 30th September 2002 includes UK generation
fixed assets with a net book value of GBP4,441m and stocks with a net book value
of GBP491m.
Statement of capital
While preparing the interim accounts, the Board concluded that the net assets of
British Energy plc have fallen to less than half of its called-up share capital.
In these circumstances we are required by Section 142 of the Companies Act 1985
to convene an extraordinary general meeting for the purposes of considering
whether any, and if so what, steps should be taken to deal with the situation.
We will shortly be issuing a circular to shareholders on this matter.
Auditors' review report
The auditors' review report refers to the uncertainties regarding the carrying
value of assets and the discussions regarding the Company's proposals for
restructuring.
PERFORMANCE BY BUSINESS
UK Generation
The focus of UK Generation continues to be safe, reliable generation and meeting
our customers' needs.
In view of the prospects for low electricity prices pertaining for the
foreseeable future, the value of both our nuclear and coal generation plant will
have to be reviewed and almost certainly downwards.
Nuclear
Output for the period was 30.33 TWh as compared with 32.70 TWh last year
primarily due to the unplanned outages on both units at Torness following
fatigue cracking within the gas circulators. Both units at Torness have been
repaired and are now fully operational. Nuclear unit operating costs for the
period rose by 0.11 p/kWh to 1.85p/kWh compared to the same period last year due
to lower output more than off-setting lower costs.
Five statutory outages were completed in the period and the fleet is on track to
meet the revised target of 63 +/- 1 TWh announced in August.
The large investment in a new enterprise wide Work Management System has been
successfully implemented at Hinkley, Heyshams 1 & 2 and Sizewell with the target
date for implementation at seven stations by Spring 2003. Once fully enabled,
the system and associated standardised processes will enhance plant maintenance
and lead to an improved reliability.
Fossil
British Energy's coal plant at Eggborough has also suffered from the reduction
in wholesale electricity prices and the narrowing in the differential between
winter and summer prices.
As expected, output at Eggborough, a mid-merit coal-fired plant, was lower at
1.37 TWh as compared with the same period last year (3.05 TWh) due to planned
outages, lower prices and the continuing programme to install flue gas
desulphurisation (FGD) equipment in two units.
The FGD project is proceeding in accordance with the committed programme. Site
construction activities are now well underway and the plant is on target for
hand over in September 2004 as planned. Project costs remain in line with the
original predictions.
Trading
Achieved price at the National Balancing Point remained similar to last year at
2.02p/kWh (2.08p/kWh last year) but this was mainly due to the increased
turnover within the Direct Sales Business. At the Station Gate, prices fell by
8% to 1.73p/kWh.
Overall market prices have fluctuated over the year and have been approximately
10/15% lower on average than the same period last year. British Energy's
achieved price for the full year is expected to be just less than 10% below last
year.
Our Direct Sales Business supplied 10.1 TWh in the first half representing an
increase of 19%. It continues to provide a quality service having won its 14th
successive customer satisfaction award.
In July we announced that we had re-negotiated the NEA with our counterparties
Scottish Power and Scottish and Southern Energy. This has now received approval
from OFGEM and the European Commission. The NEA was agreed in 1990 and was due
to expire in 2005. The revised agreement will continue until the introduction of
the British Electricity Transmission and Trading Arrangements or 1st April 2006,
whichever occurs first. Beyond that date, the counterparties have an option for
follow-on contracts up to 2011 at reduced volumes.
AmerGen
We announced in early September that we and our joint venture partner, Exelon,
were considering the possible sale of AmerGen. This decision was made prior to
British Energy's approach to the Government for financial assistance. It was
taken because of the difficulties in growing the AmerGen business further, due
to increased competition and higher prices for nuclear assets and the fact that
both parties' strategies had evolved since the joint venture was formed in 1997.
Under the restructuring proposals, the sale of AmerGen must be agreed by 30th
June 2003.
AmerGen's operating profit before tax contribution for the period was GBP45m.
All three plants, Clinton, Oyster Creek and TMI - unit 1, performed well over
the period. Output was 9.67 TWh as compared with 9.59 TWh for the same period
last year and the average overall load factor was 89%.
Clinton successfully completed a refuelling outage during which the steam
turbine was replaced and modifications were made to the plant to enable an
increase in power output of 65MW and extending the period between outages to 24
months.
Bruce Power
In November we announced that we had entered into discussions with a view to
selling all, or part of, our stake in Bruce Power.
The contribution from Bruce in the period was GBP36m, being operating profit
before tax, post minorities.
Bruce B continues to deliver good operating performance with output over the
period at 10.62 TWh. The load factor was 77% (down from 93% a year ago)
reflecting the higher number of planned outages. Planned maintenance work on one
reactor, which began in March 2002, was completed in August.
The re-start of two units of Bruce A is planned by early summer 2003 and the
first regulatory hearing is scheduled for today.
The Ontario electricity market was opened to competition on 1st May 2002 at both
the wholesale and retail levels. Following a summer of record demand for
electricity that resulted in a shortage of supply and higher than anticipated
retail prices, the Ontario government has stated its intent to protect consumers
by introducing legislated price controls at the retail level.
Regarding the potential sales of both AmerGen and Bruce, the proceeds are likely
to reflect the current market in North America for merchant generating plant and
also any changes in the regulatory framework, particularly for Bruce in Ontario.
UK ENERGY REVIEW
The Government Energy Review process launched in Spring 2002 involved a number
of activities aimed at reaching a wide cross-section of stakeholders. The
Consultation document focussed on eight key issues with security of supply,
climate change and nuclear energy prominent. British Energy's submission
addressed all the questions posed by the Consultation document and, in
particular, highlighted the environmental and security of supply benefits of
nuclear power. A White Paper is due to be published in early 2003.
NEW YORK STOCK EXCHANGE COMPLIANCE
The Directors have been notified by the New York Stock Exchange (NYSE) that
British Energy does not currently comply with the NYSE's continued listing
criteria relating to the minimum share price. The NYSE requires that the average
closing price of a security not be less than $1.00 over a 30-day consecutive
trading period. Under NYSE rules, once notified of its failure to meet the
minimum share price criteria, a company must bring its share price and average
share price over the preceding 30 trading days back above $1.00 within six
months of receipt of the notification or following its next shareholders'
general meeting if approval from its shareholders is necessary to give effect to
any such change. We are currently in discussions with the NYSE with respect to
this issue and are reviewing the options available to the Company.
FURTHER INFORMATION
Contacts
Investor Relations Media Enquiries
Paul Heward 01355 262201 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 strategies and other matters that are not historical facts concerning
our 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 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.
Business Performance (see note 1)
6 months 6 months Year 6 months 6 months Year
ended ended ended ended ended ended
30 Sep 02 30 Sep 01 31 Mar 02 Notes 30 Sep 02 30 Sep 01 31 Mar 02
GBPm GBPm GBPm GBPm GBPm GBPm
Group and share of joint
995 1,057 2,259 venture turnover - 995 1,057 2,259
continuing activities
41 - - Exceptional income 2 - - -
Group and share of joint
venture turnover including
1,036 1,057 2,259 exceptional income 995 1,057 2,259
Less: share of turnover in
(127) (128) (210) joint venture (127) (128) (210)
909 929 2,049 Turnover: Continuing 2 868 929 2,049
activities
Operating costs before
(894) (857) (1,818) exceptional items 3 (894) (857) (1,818)
(53) (2) (512) Exceptional operating 3 - - -
charges
Operating costs after
(947) (859) (2,330) exceptional items (894) (857) (1,818)
(38) 70 (281) Operating (loss)/ profit: (26) 72 231
Continuing activities
Share of operating profit of
45 47 37 joint venture 45 47 37
- 4 4 Profit on sale of - - -
investments
Financing charges:
(143) (136) (226) Revalorisation and net 4 (143) (136) (226)
interest
(82) - (27) Exceptional financing 4 - - -
charges
(119) - - Amounts written off 4,7 - - -
investments
(Loss)/profit on ordinary
(337) (15) (493) activities before taxation (124) (17) 42
(66) (22) (25) Taxation 5 (78) (21) (81)
Loss on ordinary activities
(403) (37) (518) after taxation (202) (38) (39)
(7) (8) (9) Minority interest
Loss attributable to
(410) (45) (527) shareholders
Dividends:
- (16) (48) Ordinary interim/ annual
- - (2) Non-equity
(410) (61) (577) Loss for the period
Loss per share (p):
(68.1) (7.6) (88.5) Basic 6 (34.7) (7.8) (8.4)
Dividends per share (p):
- 2.7 8.0 Interim / annual
- - 2.3 Non-equity
Notes 30 Sep 02 31 Mar 02
GBPm GBPm
Fixed assets
Tangible assets and investments 7 4,850 4,909
Current assets
Decommissioning fund 332 411
Stocks 526 514
Debtors (including Bruce Power operating lease prepayments) 618 732
Investments - short-term deposits 22 209
Cash 62 -
1,560 1,866
Creditors: amounts falling due within one year 8 (885) (975)
Net current assets 675 891
Total assets less current liabilities 5,525 5,800
Creditors: amounts falling due after more than one year 8 (2,726) (2,773)
Provisions for liabilities and charges 8 (2,598) (2,400)
Net assets 201 627
Capital and reserves
Called up equity share capital 277 277
Share premium 76 76
Capital redemption reserve 350 350
Profit and loss account (646) (213)
Equity Shareholders' funds 57 490
Non-equity Shareholders' funds 93 93
Minority interests 51 44
Capital employed 201 627
6 months 6 months Year
ended ended ended
Notes 30 Sep 02 30 Sep 01 31 Mar 02
GBPm GBPm GBPm
Net cash inflow from operating activities 9 76 124 380
Returns on investment and servicing of finance (20) (3) (53)
Taxation received 6 9 4
Payments to acquire tangible fixed assets (147) (61) (225)
Receipts from sale of financial investments - 36 38
Capital expenditure and financial investment (147) (25) (187)
Acquisitions and disposals (2) (129) (129)
Equity dividends paid (34) (30) (46)
Management of liquid resources 187 99 18
Financing (4) 33 13
Increase in cash 62 78 -
Statement of Total Recognised Gains and Losses
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002 (unaudited)
6 months 6 months Year
ended ended ended
30 Sep 02 30 Sep 01 31 Mar 02
GBPm GBPm GBPm
Loss for the period (410) (45) (527)
Translation differences on foreign currency net (24) (14) (8)
investments
Total recognised losses for the period (434) (59) (535)
Prior year adjustment in respect of accounting policy
change:
Deferred tax - (130) (130)
Total recognised losses since last report (434) (189) (665)
1. BASIS OF PREPARATION
Having reviewed the longer term prospects of the business, the Directors of
British Energy decided that they had no alternative but to seek financial
support from the UK Government. On 9 September 2002 the Secretary of State
for Trade and Industry 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 it had entered into a revised facility agreement with the Secretary of
State for Trade and Industry for up to GBP650m.
The facility agreement was due to expire on 29 November 2002. On 28 November
2002 British Energy announced that the facility agreement had been extended
until 9 March 2003. The facility agreement is cross-guaranteed by the
principal Group subsidiaries (excluding Eggborough Power (Holdings) Limited,
Eggborough Power Limited and Bruce Power L.P.) 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 a breach of law.
Discussions regarding longer term restructuring have commenced. If these
discussions are not successful British Energy may be unable to meet its
financial obligations as they fall due and therefore British Energy may not
be considered to be a going concern. However, in accordance with FRS 18, the
financial statements have been prepared on a going concern basis because the
entity is not being liquidated nor 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 to 9 March 2003 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 reclassify fixed assets and long term liabilities as current assets and
liabilities.
Further, in light of the current uncertainty surrounding the operations and
prospects of the Company, the Directors have significant doubt as to whether
the assumptions and estimates used to determine the carrying values of the
UK generation fixed assets (GBP4,441m) and stocks (GBP491m) are now the most
appropriate. However, the Directors do not believe that reasonable
assumptions and estimates can be made for these items in the current
circumstances and as such have presented the UK generation fixed assets and
stocks in the financial statements on a basis consistent with that used in
the preparation of British Energy's Group financial statements for the year
ended 31 March 2002.
These interim financial statements have been prepared on the basis of
accounting policies consistent with those set out in the Group financial
statements for the year ended 31 March 2002.
Fixed annual charges are apportioned to the interim period on the basis of
time elapsed. Other expenses are accrued in accordance with the same
principles used in the preparation of the annual accounts.
To assist readers to compare the underlying business performance of the
Group, "business performance" profit and loss account figures are shown
which exclude exceptional items.
The interim financial statements are unaudited but have been formally
reviewed by the auditors and their report to the Company is set out below.
The figures for the year ended 31 March 2002 have been extracted from the
full financial statements for that year, which have been delivered to the
Registrar of Companies and on which the auditors have made an unqualified
report. The interim financial statements were approved by the Board of
Directors on 11 December 2002.
2. TURNOVER AND OPERATING PROFIT
6 months 6 months Year
ended ended ended
30 Sep 02 30 Sep 01 31 Mar 02
TWh TWh TWh
(a) Turnover
Output
United Kingdom 31.7 35.8 74.7
Canada 10.6 10.2 20.5
42.3 46.0 95.2
Continuing activities: GBPm GBPm GBPm
United Kingdom
Wholesale generation sales 374 528 1,162
Direct supply sales 267 215 522
Exceptional income 41 - -
Miscellaneous income 21 10 17
703 753 1,701
Canada 206 176 348
909 929 2,049
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 agreement, which has now had regulatory approval, the Company
is in a position to release a balance of GBP41m in respect of cash amounts
previously received. This release has been treated as an exceptional item.
A geographical analysis of business performance operating (loss)/ profit
before exceptional items is as follows.
6 months 6 months Year
ended ended ended
30 Sep 02 30 Sep 01 31 Mar 02
GBPm GBPm GBPm
(b) Operating (loss)/profit
United Kingdom (69) 23 189
Canada 43 49 42
(26) 72 231
3. OPERATING COSTS
6 months 6 months Year
ended ended ended
30 Sep 02 30 Sep 01 31 Mar 02
GBPm GBPm GBPm
Operating costs before exceptional items
Fuel 178 237 490
Materials and services 311 249 544
Staff costs 172 160 328
Depreciation 139 142 285
800 788 1,647
Energy supply costs 94 69 171
894 857 1,818
Exceptional operating charges
Materials and services 53 - 209
Staff costs - 2 3
Depreciation - - 300
53 2 512
The Group has certain pre-NETA contracts which are excluded from the
wholesale and direct supply portfolios. 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 and a provision has been made to
reflect the future discounted losses that are expected under the terms of
these contracts. An exceptional charge of GBP46m has been made in the period
to make further provision for these long-term contracts.
There are exceptional materials and services costs of GBP7m in respect of
costs incurred on advisory and other costs associated with re-structuring
the Company's activities.
4. FINANCING CHARGES/(CREDITS)
6 months 6 months Year
ended ended ended
30 Sep 02 30 Sep 01 31 Mar 02
GBPm GBPm GBPm
Revalorisation of nuclear liabilities
Changes in price levels 65 60 65
Release of discount for the period 55 55 110
120 115 175
Revalorisation of other provisions 10 3 12
Revalorisation of decommissioning fund (14) (15) (23)
Share of joint venture (2) (2) (4)
Revalorisation charge before exceptional items 114 101 160
Exceptional item 82 - 27
196 101 187
Interest payable less receivable 29 35 66
225 136 253
At 30 September 2002 the market value of the decommissioning fund (GBP332m)
was lower than the value (GBP435m) that would have been derived from
revalorising the cost of the investment. As a result, an exceptional charge
of GBP103m has been recognised to restate the decommissioning fund
receivable to market value. Of this GBP103m, GBP82m represents the write-off
of previous revalorisation and has been treated as an exceptional financing
charge. The balance of GBP21m has been included in 'Amounts written off
investments'.
5. TAXATION
6 months 6 months Year
ended ended ended
30 Sep 02 30 Sep 01 31 Mar 02
GBPm GBPm GBPm
Tax on business performance results (78) (21) (81)
Tax on exceptional items 12 (1) 56
(66) (22) (25)
Taxation has been calculated on the loss for the six months to 30 September
2002 to take account of an allocation of net permanently disallowable items
and the higher rate of tax payable on US and Canadian taxable profits, and
includes the share of discount unwinding on deferred tax applicable to the
period.
6. LOSS PER SHARE
The loss per share for the period has been calculated on the basis of a loss
on ordinary activities after taxation, minority interests and non-equity
dividends of GBP410m (30 September 2001: loss of GBP45m; 31 March 2002: loss
of GBP529m); and by reference to a weighted average of 602 million ordinary
shares (30 September 2001: 593 million ordinary shares; 31 March 2002: 598
million ordinary shares). The business performance loss per share was based
on a loss after tax, minority interests and non-equity dividends of GBP209m
(30 September 2001: loss of GBP46m; 31 March 2002: loss of GBP50m).
7. FIXED ASSETS
Tangible assets and investments includes amounts in respect of own shares
held in trust to satisfy obligations under share options granted to
Directors and employees of the Company.
As at 30 September 2002 the British Energy Employee Share Trust held
21,507,127 ordinary shares at an average cost of GBP4.68 for a total
consideration of GBP101m. The Qualifying Employee Share Trust ('QUEST') held
5,292,103 ordinary shares at a cost per share of GBP5.32 per share (GBP28m)
and 19,165,471 'A' shares at a cost of 60p per share (GBP11m).
The market value of the shares held by the employee trusts at 30 September
2002 was GBP5m, compared to a book value of GBP103m. 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
GBP98m has been recognised within 'Amounts written off investments'.
In light of the uncertainty surrounding the operations and prospects of the
Company (see note 1), the Directors have significant doubt as to the
appropriateness of the assumptions and estimates used to determine the
carrying values of the Company's UK electricity generation assets. The
Company has not yet been able to assess the appropriateness of the economic
values reported in these accounts as required by FRS 11, pending development
of a new business structure in consultation with the UK Government. The
Company intends to carry out an FRS 11 revaluation of assets within the year
end accounts to 31 March 2003.
The fixed assets in these financial statements are therefore based on the
Company's view of its prospects which was used in the preparation of British
Energy's Group financial statements for the year ended 31 March 2002. The
balance sheet drawn up at 30 September 2002 includes UK generation fixed
assets with a net book value of GBP4,441m.
8. CREDITORS AND PROVISIONS
Other
creditors
Nuclear Deferred and
liabilities Debt Tax provisions Total
GBPm GBPm GBPm GBPm GBPm
Creditors:
Amounts falling due within one year 259 192 - 434 885
Amounts falling due after more than 1,868 858 - - 2,726
one year
Provisions for liabilities and charges 1,701 - 458 439 2,598
As at 30 September 2002 3,828 1,050 458 873 6,209
As at 31 March 2002 3,719 1,068 414 947 6,148
Other creditors and provisions includes GBP365m in respect of provisions
relating to onerous contracts which are now excluded from the wholesale and
direct supply portfolios. Under the terms of certain contracts for
differences the Company is required to make difference payments based on
contract prices compared with market prices over periods of up to 11 years.
The latest assessment of future market prices anticipates a further increase
in the price premium payable under these contracts. The fall in market
prices also resulted in the Company increasing its provision in respect of
its long-term contract with Teesside Power. The provision for onerous
contracts has been increased by GBP46m as at 30 September 2002.
9. RECONCILIATION OF OPERATING CASH FLOW
6 months 6 months Year
ended ended ended
30 Sep 02 30 Sep 01 31 Mar 02
GBPm GBPm GBPm
Operating (loss)/profit including exceptional items (38) 70 (281)
Exceptional items 12 2 512
Operating (loss)/profit excluding exceptional items (26) 72 231
Depreciation 143 142 285
Nuclear liabilities charged to operating costs 57 75 156
Nuclear liabilities discharged (68) (131) (332)
Movements in other provisions (31) (26) (43)
Regular contributions to the decommissioning fund (9) (9) (18)
Decrease in working capital 10 1 101
Net cash inflow from operating activities 76 124 380
Payments to acquire tangible fixed assets (147) (61) (225)
Net cash (outflow)/inflow from operating activities net of
capital expenditure (71) 63 155
10. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
GBPm
Decrease in debt in the period 18
Increase in cash 62
Decrease in liquid resources (187)
Increase in net debt (107)
Net debt at 1 April 2002 (859)
Net debt at 30 September 2002 (966)
11. CONTINGENT LIABILITIES
These accounts are drawn up on a going concern basis, the basis of which is
explained more fully in note 1. This note describes the contingent
liabilities which are applicable to the Group.
The Group has been provided with a financing facility by the Secretary of
State for Trade and Industry, as described in note 1 to these accounts. As
at 30 September 2002 the Group had drawn down no cash, but had utilised
GBP227m of collateral under the facility to support trading operations in
the UK and North America. The facility agreement is cross-guaranteed by the
principal Group subsidiaries (excluding Eggborough Power (Holdings) Limited,
Eggborough Power Limited ('EPL') and Bruce Power L.P.) 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 a breach of law.
Amounts owing by EPL to the Eggborough bank syndicate are not guaranteed by
British Energy plc. However, British Energy plc guarantees the payment of
amounts by British Energy Power and Energy Trading Limited to EPL,
calculated to cover EPL's borrowing and operating costs. In addition British
Energy plc also provides a subordinated loan facility to EPL.
In October 2002, Greenpeace Ltd and Nexgen Group Ltd trading as Ecotricity
(the "Claimants") brought an application for judicial review against the
Secretary of State for Trade and Industry. The Company is named as an
interested party. The Claimants are challenging the decision to grant state
aid to the Company as unlawful and are seeking a declaration to this effect
and an order for immediate repayment. A hearing will be heard in January
2003. It is too early to say what impact the proceedings would have on the
Group's financial position if the Claimants were successful.
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.
12. POST BALANCE SHEET EVENTS
On 28 November 2002 the Board of Directors announced a restructuring intended to
achieve the long-term financial viability of the British Energy Group. The Group
is currently dependent on financial support from the Secretary of State for
Trade and Industry whilst it seeks the support of its significant creditors. The
main principles of the restructuring are described in the Stock Exchange
announcement of 28 November. The facility agreement with the Secretary of State
for Trade and Industry is described in note 1 to these accounts and in the Stock
Exchange announcement of 28 November as attached.
Introduction
We have been instructed by the Company to review the financial information which
comprises the profit and loss account, balance sheet, cash flow statement,
statement of total recognised gains and losses and related notes. We have read
the other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
Directors' Responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
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 accounting policies and presentation
have been consistently applied unless otherwise disclosed. 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
performed in accordance with United Kingdom Auditing Standards and, therefore,
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information. This report 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 in to whose hands it may come save where
expressly agreed by our prior consent in writing.
As indicated in note 1 "Basis of Preparation" to the interim financial
information, the Directors have significant doubt as to whether the assumptions
and estimates used to determine the carrying value of the UK generation fixed
assets and stocks are now the most appropriate and do not believe that
reasonable assumptions and estimates can be made for these items in the current
circumstances. As a result the Directors have not re-evaluated, since the issue
on 14 May 2002 of the Company's consolidated financial statements for the year
ended 31 March 2002, their estimates of the carrying values of the UK generation
fixed assets and stocks. As such, the evidence available to us has been
restricted and we are unable to carry out sufficient review procedures necessary
on the appropriateness of the carrying values of the UK generation fixed assets
and stocks. Adjustments may have been required to the carrying value of those
assets in the interim financial information had the re-evaluation been carried
out.
Fundamental uncertainty - going concern
In arriving at our review conclusion, we have considered the adequacy of the
disclosures made in note 1 concerning the preparation of the interim financial
information on a going concern basis. The validity of this depends on the
continuation of financial assistance from the Secretary of State for Trade and
Industry 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 successful
completion of financial restructuring we consider that it should be drawn to
your attention but our conclusion is not qualified in this respect.
Review conclusion
In respect of the limitations on our work relating to the appropriateness of the
carrying values of the UK generation fixed assets and stocks, we have not
obtained all the information and explanations that we consider necessary for the
purpose of our review and we are unable to form a conclusion as to whether any
material modifications should be made in this respect.
On the basis of our review, with the exception of any potential adjustments
arising from the matter described in the preceding paragraph, we are not aware
of any material modifications that should be made to the financial information
as presented for the six months ended 30 September 2002.
PricewaterhouseCoopers
Chartered Accountants
Edinburgh
11 December 2002
Notes:
(a) The maintenance and integrity of the British Energy 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 interim 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.
British Energy plc ("British Energy" or the "Company")
Announcement of restructuring proposals and extension of HMG loan facility
The Board of British Energy (the "Board") announces a restructuring intended to
achieve the long-term financial viability of the British Energy Group. The
restructuring will require certain significant creditors of the British Energy
Group to compromise their claims and will lead to very significant dilution of
existing shareholders. The UK Government ("HMG") has confirmed its intention to
support the proposed restructuring and has agreed to extend the facility
agreement (the "Facility"), entered into on 26 September 2002, until 9 March
2003 in order to provide financial stability and security whilst British Energy
seeks the support of these significant creditors.
The principles for restructuring include:
- British Energy has entered into non-binding Heads of Terms with BNFL,
which will provide for two new contracts to replace the agreements under
which BNFL currently provides front and back-end fuel related services to
British Energy Generation Limited ("BEG") and British Energy Generation (UK)
Limited ("BEG(UK)"), British Energy's wholly-owned UK nuclear generating
subsidiaries
- All uncontracted nuclear liabilities, decommissioning liabilities of the
nuclear power stations owned by BEG and BEG(UK) and the historic liabilities
relating to spent fuel will be met through a Nuclear Liability Fund ("NLF").
British Energy will make ongoing contributions to this fund and HMG has
agreed to assume financial responsibility for such liabilities to the extent
that they exceed the assets in the NLF
- British Energy would issue new bonds to significant creditors, together
with new ordinary shares, in exchange for the extinguishment of existing
obligations they are owed. British Energy would also issue new bonds to the
NLF.
- Under the proposed restructuring, the Board will not issue more than
GBP700 million in new bonds of which GBP275 million will be contributed to
the NLF
- The NLF will also receive a contractual entitlement to receive 65 per
cent. of the net cash flow of the British Energy Group (after tax, financing
costs and transfer to cash reserves)
- As a result of the restructuring, existing shareholders of British Energy
are expected to be very significantly diluted
- Ordinary trade creditors and employees are expected to be paid in full as
the relevant amounts fall due
- British Energy is continuing discussions with potential buyers for its
interests in Bruce Power LP ("Bruce") and Amergen
The restructuring plan will need to be approved by the significant creditors
whose entitlements are to be compromised, HMG, existing shareholders (if
required), the Inland Revenue and the European Commission (under State Aid
Rules) prior to being finally implemented. This is expected to be completed by
mid 2004 and only then can the restructuring be fully implemented. Prior to 14
February 2003, the Board will seek to agree formal standstill arrangements and
agreement in principle to the proposed restructuring with the significant
creditors. An application for Restructuring Aid must be submitted to the
European Commission prior to 9 March 2003.
The Board believes that the proposed restructuring outlined in this announcement
is in the best interests of the Company and its creditors and is working closely
in conjunction with its advisors to implement a successful restructuring of
British Energy within the principles accepted by HMG.
The Board believes that the restructuring of the group offers the best available
opportunity to achieve the long term financial viability of the British Energy
Group. However, the proposed restructuring requires the Company to reach formal
agreement with a large number of creditors with respect to diverse financial
interests, as well as a successful disposal of British Energy's interests in
Bruce and Amergen.
If such agreements cannot be reached, the required approvals are not forthcoming
within the timescales envisaged, the assumptions underlying the proposal are not
fulfilled or the conditions to the restructuring are not satisfied or waived,
the Company may be unable to meet its financial obligations as they fall due and
therefore the Company may have to take appropriate insolvency proceedings, in
which case the distributions to unsecured creditors may represent only a small
fraction of their unsecured liabilities and there is unlikely to be any return
to shareholders.
Contacts:
Andrew Dowler, Tel: 0207 831 3113
Financial Dynamics
British Energy plc ("British Energy" or the "Company")
Announcement of restructuring proposals and extension of HMG loan facility
Introduction
The Board of British Energy (the "Board") announces a restructuring intended to
achieve the long-term financial viability of the British Energy Group. The
restructuring will require certain significant creditors of the British Energy
Group to compromise their claims and will lead to a very significant dilution of
existing shareholders. The UK Government ("HMG") has confirmed its intention to
support the proposed restructuring and has agreed to extend the facility
agreement (the "Facility") entered into on 26 September 2002, until 9 March
2003, in order to provide financial stability and security whilst British Energy
seeks the support of these significant creditors.
Implementation of the restructuring proposals is subject to material conditions,
including approval by the European Commission under State Aid Rules.
The Board believes that the proposed restructuring outlined in this announcement
is in the best interests of the Company and is working closely in conjunction
with its advisers to implement a successful restructuring of British Energy in
accordance with the principles accepted by HMG.
Background
At the Company's AGM on 16 July 2002, the Chairman stated that commercial
conditions in the UK electricity market were tough. On 13 August 2002, the
Company revised its forecast UK nuclear generation for the year to 31 March 2003
to be in the region of 63 TWh (plus or minus 1 TWh) compared with the originally
planned generation of 67.5 TWh. This revision was largely based on unplanned
outages at the Company's Torness, Heysham, and Dungeness B nuclear power
stations.
British Energy had for some while been seeking to renegotiate its fuel contracts
with BNFL to try and significantly reduce its fixed cost base. BNFL delivered,
on 3 September 2002, its final proposal to British Energy, but the terms that
they offered fell short of those which British Energy required. Having reviewed
the longer-term prospects of the group, the Board concluded that it should not
drawdown on existing undrawn loan facilities and decided that there was no
alternative but to seek HMG support. On 5 September 2002, British Energy
announced that it had initiated discussions with HMG with a view to seeking
immediate financial support and to enable a longer term restructuring to take
place.
As a result of these discussions, on 9 September 2002 HMG provided British
Energy with a facility for up to GBP410 million which was due to mature on 27
September 2002. The facility was intended to provide working capital for British
Energy's immediate requirements and to allow the Company to stabilise its
trading position in the UK and North America.
On 26 September 2002, HMG agreed to a revised facility in an amount of up to
GBP650 million and with a maturity date of 29 November 2002. The Facility was
cross-guaranteed by certain principal group entities and secured by certain
group assets. It also contained a requirement to provide further first ranking
and fixed and floating charge security to HMG if so requested.
Since 26 September 2002, the Company and its advisers have been considering the
financial prospects of the business and working on proposals for a solvent
restructuring which would address the significant cash shortfalls arising in the
business expected in the short to medium term in light of the current market
environment.
In particular, the proposed restructuring seeks to address the following
factors:
- British Energy's nuclear fleet in the UK has high fixed costs of
production (including costs of existing contracts with BNFL); as a result
the business has been unable to withstand the reduction in wholesale
electricity prices which have fallen by over 35 per cent. over the last two
years.
- British Energy, as a merchant generator with no retail supply business, is
heavily exposed to declines in wholesale electricity prices. British Energy
has built significant direct sales to industrial and commercial customers,
but the contracts are closely linked to the wholesale electricity price.
- British Energy's wholesale electricity price exposure has been exacerbated
by a power purchase agreement and two contracts for differences which have
magnified its exposure to baseload electricity prices.
- British Energy has an obligation, under its nuclear licences, to
decommission its stations at the end of their useful life. Certain of the
decommissioning liabilities are covered by the Nuclear Decommissioning Fund
("NDF") to which British Energy contributes; however, there is no certainty
that this fund will be sufficient to cover all of the liabilities to which
it relates. In addition, other substantial decommissioning liabilities are
currently unfunded. Therefore, the amount of the decommissioning liabilities
is subject to uncertainty.
- British Energy's operations generate liabilities in respect of nuclear
fuel and waste. Some of these liabilities are covered by long term contracts
with BNFL, with the balance remaining uncontracted. These uncontracted
liabilities are long term in nature and therefore subject to uncertainty.
There is no guarantee that the business will generate sufficient funds to
cover these liabilities.
- British Energy's coal plant at Eggborough has also suffered from the
reduction in wholesale electricity prices and the narrowing in the
differential between winter and summer prices. The plant is worth
significantly less than the debt it carries.
- British Energy has successful investments in the USA and Canada but these
have not generated dividends to British Energy to date. As a result they
have stretched British Energy's financial resources. These investments are
now for sale.
- Based on unaudited management accounts, as at 30 September 2002, British
Energy had indebtedness of GBP1,050 million (including GBP490 million
secured on the Eggborough plant). The Company's funding needs have increased
significantly in both the UK and Canada to meet the collateral needs of
trading counter-parties, following the loss of its investment grade rating
in September 2002.
HMG Facility
The GBP650 million Facility will be extended at its existing level until 9 March
2003, to continue to provide working capital for the business and collateral to
support the trading operations in the UK and North America. To date,
approximately 60 per cent. of the Facility has been drawn down.
Continued financing under the Facility will be conditional on British Energy
promptly using all reasonable efforts to obtain formal standstill commitments
from certain Significant Creditors (see below), and the Secretary of State will
be entitled to require immediate repayment of the Facility if such creditors
decline to enter into these commitments by 14 February 2003 or if British Energy
Generation (UK) Limited's ("BEG(UK)") interest in Bruce Power LP ("Bruce") is
not sold by 14 February 2003 or if in the opinion of the Secretary of State the
restructuring cannot be implemented in the manner or timescale envisaged.
Discussions in relation to the possible disposals of BEG(UK)'s interests in
Bruce and Amergen are continuing. HMG's funding commitment in respect of Bruce
will be restricted, pending agreement of the proposed sale of Bruce in the short
term, subject to review by the Secretary of State in the light of progress on
the sale of Bruce.
Under the Facility, cash proceeds from any disposal of BEG(UK)'s interests in
Bruce and Amergen and net cash flow from operations of British Energy and its UK
subsidiaries (excluding Eggborough) after deduction (in the case of cashflow) of
approved UK capital and operating expenses, are required to be applied first in
repayment of the Facility and associated expenses and secondly in establishing
and maintaining cash reserves for the purposes of providing collateral for
trading and operations, covering lost revenue and costs from outages and meeting
other working capital requirements.
As the cash reserves build up, the available amount of the Facility will be
reduced. If the cash reserves were to reach GBP490 million, no further
borrowings under the Facility are envisaged and any such borrowing would require
the consent of the Secretary of State.
The Facility will remain cross-guaranteed by principal group entities other than
Bruce and secured by certain group assets. (see note below)
HMG notified its initial financial support and its extension of the Facility to
the European Commission on 9 and 27 September 2002. On 27 November 2002 the
European Commission granted approval of this aid until 9 March 2003.
On 22 November 2002, Greenpeace were granted leave to commence proceedings for a
judicial review of the rescue aid inherent in the Facility.
Standstill Agreements
British Energy will immediately seek to enter into formal standstill agreements
with BNFL and other significant finance creditors ("Significant Creditors")
comprising holders of the 2003, 2006 and 2016 sterling bonds (together the
"Bondholders"), the Eggborough bank syndicate (the "Bank Lenders") and
counterparties to three out of the money power purchase agreements and contracts
for differences: Teesside Power Limited (TPL), TotalFinaElf (TFE) and Enron
(collectively the "PPA Counterparties").
Under the proposed standstill agreements, Significant Creditors would be paid
only an element of the amounts owing to them. In particular, the British Energy
Group would pay interest but not principal on amounts owing to the Bondholders
and the Bank Lenders. British Energy Power and Trading Limited ("BEPET") would
pay to Eggborough Power Limited ("EPL") amounts attributable to its operating
costs, capital expenditure and interest on borrowings. Each PPA Counterparty
would be paid interest on overdue standstill amounts. In addition, TPL would
receive certain payments in respect of some of its operating and energy costs.
British Energy has had preliminary discussions with certain of the Significant
Creditors who have indicated a willingness, in principle, to enter into such
standstill arrangements.
In addition, BNFL has agreed in principle, subject to the arrangements with
other creditors, to standstill all payments for storage and reprocessing until
31 March 2003 and thereafter to accept reduced payments for spent fuel services
until the restructuring is completed ("Restructuring Closing Date").
British Energy expects to continue to pay ordinary trade creditors and employees
as the relevant amounts fall due.
The restructuring proposal envisages British Energy reaching formal standstill
agreements and agreement in principle on the restructuring with Significant
Creditors by 14 February 2003.
Agreement with BNFL
British Energy, BEG(UK) and British Energy Generation Limited ("BEG"), have
entered into non-binding Heads of Terms with BNFL in relation to BNFL's supply
of fuel and related fuel services for future burn (front-end and back-end). The
new contracts are conditional upon the restructuring proposals being
implemented. The existing back-end contracts between BEG, BEG(UK) and BNFL will
continue to apply in respect of fuel loaded into reactors prior to the new
contracts becoming effective. Pending formal implementation of the new
contracts, payments from British Energy to BNFL shall be made as if the new
contracts had become effective on 1 April 2003.
The principal terms of the new contracts, which will cover the expected life of
British Energy's nuclear plants, will be:
With respect to front-end fuel fabrication services:
- a payment of GBP28.5 million fixed per annum until 2006, but discounted on a
variable basis in accordance with electricity prices to a minimum of GBP13.5
million at a market price of GBP15/MWh. The fixed starting price falls to
GBP25.5 million per annum thereafter and is also subject to the discounting
mechanism
- a payment of GBP191,000 per tonne of AGR fuel delivered
With respect to back-end fuel services:
- a payment of GBP150,000 per tonne of AGR fuel, payable on irradiation of the
fuel
- a rebate/surcharge against that payment equivalent to 50 per cent. of the
difference between the market baseload price in a year and GBP16.00 per MWh
multiplied by the MWh produced by the AGR fleet in that year. The market
baseload price used in the calculation will not be less than GBP14.80 and
not more than GBP19.00
- if the market baseload price exceeds GBP19.00 per MWh, a surcharge against
that payment equivalent to 25 per cent. of the difference between the market
baseload price in a year and GBP19.00 per MWh multiplied by the MWh produced
in the AGR fleet in that year. The market baseload price used in that
calculation will not be less than GBP19.00 and not more than GBP21.00
- BNFL will assume title to spent fuel on delivery to BNFL from British
Energy
All of the above monetary amounts are indexed to the Retail Price Index ("RPI").
British Energy intends that the definitive contracts are executed before 1 April
2003.
Nuclear liabilities and the decommissioning fund
As at 30 September 2002, British Energy's unaudited management accounts
contained, on a discounted basis, an accrual of approximately GBP2.1 billion for
liabilities in respect of British Energy's back-end contracts with BNFL, which
extend to 2086, and provisions of approximately GBP0.7 billion for uncontracted
back-end liabilities and approximately GBP0.6 billion (net of the NDF) for costs
of decommissioning which may take as much as eighty years from the start of
defuelling to complete. Under the restructuring, the existing NDF would be
enlarged into or supplemented by a new fund (the "Nuclear Liability Fund")
covering these historic spent fuel liabilities and uncontracted back-end
liabilities as well as costs of decommissioning.
The value of the present NDF on the balance sheet at 30 September 2002 was
GBP0.3 billion based on unaudited management accounts. Pending implementation
of the restructuring, payments to the NDF will continue on the existing basis.
After the Restructuring Closing Date, British Energy will contribute to the
NLF/NDF, as appropriate:
- fixed decommissioning contributions of GBP20 million per annum (indexed to
RPI) but tapering as stations close
- GBP150,000 (indexed to RPI) for every tonne of fuel loaded into the Sizewell
B reactor after the Restructuring Closing Date
- GBP275 million of new bonds (see below)
- 65 per cent. of free cash flow (see below)
Subject to approval of the restructuring and the compromise with Significant
Creditors set out below, HMG will meet the costs of historic back-end fuel
liabilities and will assume responsibility for uncontracted and decommissioning
liabilities to the extent that the accrued value of the NDF and the
contributions by British Energy to the NLF (as set out above) are insufficient
to meet the liabilities as they fall due. Any surplus would be applied towards
the costs borne by HMG in respect of historic back-end fuel contracts. The
average annual cash cost to British Energy of meeting the historic back-end fuel
costs to be assumed by HMG would have been approximately GBP150 million to
GBP200 million per annum over the next ten years, declining thereafter.
The fixed decommissioning contributions will be accelerated on a net present
value basis (discounted at a discount rate appropriate to the fund) and become
immediately due and payable in the event of the insolvency of BEG or BEG(UK).
The accelerated payment will be guaranteed by all principal group companies and
secured by charges on their assets.
Restructuring Process
The arrangements described above represent the contributions which HMG and BNFL,
respectively, are willing to make to facilitate a restructuring of British
Energy. British Energy believes that financial viability can only be achieved if
certain other existing creditors of the British Energy Group also agree to make
a contribution to the restructuring by agreeing to a compromise of their
existing claims. Based on unaudited management accounts at 30 September 2002,
the Significant Creditors whose claims will need to be compromised are:
(GBPm)
Bondholders 408
Bank Lenders (1) 490
PPA Counterparties 365
1,263
(1) Excludes any valuation of associated interest rate swaps
The Bondholders are creditors of British Energy but also have a joint and
several guarantee from BEG and BEG(UK). Enron is a creditor of BEG and has a
guarantee from British Energy; whilst the other PPA Counterparties (namely,
Teesside Power Limited and TotalFinaElf) are creditors of BEPET and likewise
have guarantees from British Energy. Amounts owing by EPL to the Bank Lenders
are not guaranteed by British Energy but British Energy guarantees the payment
of amounts by BEPET to EPL calculated to cover EPL's borrowing and operating
costs and British Energy also provides a subordinated loan facility to EPL.
Under the restructuring, the Significant Creditors will be asked to extinguish
their existing claims in exchange for a combination of new bonds and new
ordinary shares in the restructured British Energy Group. The amounts that are
expected to be offered to each class of creditor will likely depend on not only
the amount each such class claims is owing to them but also other factors
including the identity of the debtor and any guarantor. In addition, at the
Restructuring Closing Date new bonds will be issued to the NLF and thereafter a
proportion of annual free cash flow will be contributed to the NLF.
New bonds
Under the restructuring proposal the par value of new bonds to be issued will
not exceed GBP700 million.
The actual amount of the new bonds to be issued and the number of tranches or
classes thereof will be determined following a detailed review of the level of
debt that the business is capable of supporting in light of the financial
position of the business at the time when the restructuring is implemented.
The financial robustness of the business will be supported by cash reserves of
up to a maximum of GBP490 million to cover collateral and working capital
requirements of the business and lost revenue and costs in relation to outages.
The terms of the new bonds are yet to be finalised. However, they are presently
expected to be divided into a number of tranches amortising on an annuity basis,
the overall redemption of which is expected to match closely the remaining
useful economic life of the power stations. Consequently, the new bonds are
expected to mature on or before 2035 and to carry a fixed coupon of
approximately 7% per annum. Application will also be made for Listing on the
Official List. In due course, British Energy may seek to have one or more rating
assigned to the new bonds. Prepayments or purchases of the new bonds will only
be permitted if British Energy at the same time prepays on a pro rata basis part
of the net present value of the decommissioning contributions for the ensuing
five years.
If the maximum amount of GBP700 million in new bonds were issued, the Board
would issue GBP275 million to the NLF with the remaining GBP425 million being
issued to Significant Creditors.
Nuclear Liability Payments
The British Energy group will also make contributions ("Nuclear Liability
Payments") to the NLF of 65 per cent. of the group's consolidated net annual
cash flow after tax, financing costs and the funding of the Cash Reserves up to
GBP490 million. For these purposes, financing costs includes payment of interest
and repayment of principal. The percentage used to calculate the Nuclear
Liability Payments will be adjustable on a fair and reasonable basis so that
shareholders benefit from retained cash flow and proceeds of new subscriptions
for shares and so that the NLF and shareholders are not adversely affected by
any demerger, issue of securities to shareholders or other corporate actions.
The NLF will have the right, from time to time, to convert all or part of the
Nuclear Liability Payments into such number of ordinary shares in the
restructured group as would represent after full conversion the same percentage
of the share capital as the percentage used to calculate the Nuclear Liability
Payments prior to conversion (i.e. 65 per cent. at the current time).
For so long as they are held by the NLF such ordinary shares would be non-voting
to the extent that they would otherwise carry 30 per cent. or more of the voting
rights of the restructured company.
New Equity
In addition, Significant Creditors are expected to be issued with new ordinary
shares, thereby very significantly diluting existing British Energy shareholders
(including holders of A shares).
Conditions
The restructuring proposal is conditional on, inter alia:
- Completion of a sale of British Energy's interest in Bruce by 14 February
2003
- A sale of British Energy's interest in Amergen having been agreed by 30
June 2003 and completed by the Restructuring Closing Date
- Formal agreement to the restructuring proposals having been entered into
by BNFL, the Bank Lenders, TPL, TFE and Enron by no later than 30 September
2003
- The restructuring proposals having been approved by meetings of the
bondholders by 30 September 2003
- Receipt of State Aid approvals to the restructuring proposal by 30 June
2004 (or such later date, not being later than 30 September 2004, or as the
Secretary of State may agree)
- Admission of the new ordinary shares and new bonds to listing by the UKLA
- Shareholder approval if required
- All necessary regulatory approvals and tax clearances
Documentation to approve the restructuring is expected to be issued in the
summer of 2003. The European Commission approval of any restructuring aid
application is expected by mid-2004.
The Government assistance to the restructuring proposals is subject to State Aid
approval. Once the plan has agreement in principle from Significant Creditors
the Government will notify the plan to the European Commission for approval. The
decision of the European Commission is expected by mid 2004.
Bruce/Amergen
As previously announced, British Energy is currently in discussions with
potential buyers for its interests in Bruce and Amergen, which are respectively
a subsidiary and an associate of BEG(UK). Any proceeds from disposal will be
applied first in respect of repayment of the Facility and second in respect of
the cash reserves noted above. The restructuring proposal assumes that Bruce
will be sold by 14 February 2003 but there cannot be any assurance that this
will be achieved.
Restructured business
Following completion of the restructuring process, British Energy will be a
merchant generator in the UK market with nuclear generating facilities and the
Eggborough coal-fired power station with a combined capacity of 11.6 GW. Output
will continue to be sold into the wholesale power market or under arrangements
with energy supply companies.
The Board intends to reduce the Group's exposure to wholesale electricity prices
in the UK. The revised BNFL contract will provide a partial hedge against market
prices in respect of approximately 40 per cent. of British Energy's total
electricity output (including Eggborough and Sizewell). In addition, the Board
intends to implement a trading strategy which will seek to enter into short and
medium-term power-sale contracts with market counterparties and with industrial
and commercial customers, to hedge the majority of its remaining output.
While the company is targeting annual output from the nuclear power fleet of
approximately 69 TWh (82 per cent. load factor), the Board considers that a
prudent judgement of the normal level of output from these plants on an annual
basis should be 67TWh (80 per cent. load factor).
In addition, under the proposed restructuring, the exposure of the group to the
uncertainty and long term risks inherent in the group's uncontracted and
decommissioning liabilities and substantial historic liabilities to BNFL would
be limited to the amount of the notes issued to the NLF and the ongoing Nuclear
Liability Payments and fixed decommissioning contributions.
As a result of the restructured BNFL contracts, cash operating costs (including
maintenance capital expenditure and overheads (including corporate overheads))
in the nuclear operations, on an assumption of 67 TWh output and at electricity
prices of GBP16 per MWh (in 2002/3 prices), are expected to be approximately
GBP14.50 per MWh (in 2002/3 prices).
Taking account of the needs of the restructured business, the Board intends to
take action to reduce corporate overhead costs.
Other Considerations
The legal structure and the steps necessary to implement the proposed
restructuring, together with their accounting and tax consequences, have not
been finalised. Implementation of the proposed restructuring will require the
identification of a structure and steps which permit the commercial and economic
effects outlined above to be achieved without material adverse taxation or
accounting consequences.
The detailed terms of the restructuring will also need to be discussed and
agreed with the Inland Revenue. Formal agreements will need to be reached with
Bondholders, the Bank Lenders, TPL, TFE and Enron in relation to the standstill
and the restructuring of their diverse financial interests. No agreement has
been reached in relation to the price or terms of any sale of Bruce or Amergen.
Furthermore the European Commission may not approve the restructuring or may
impose conditions to such approval that would affect the financial terms or even
the viability of the restructuring.
If such agreements cannot be reached or the required approvals are not
forthcoming within the timescales envisaged, or the assumptions underlying the
proposal are not fulfilled, or the conditions to the restructuring proposal are
not satisfied or waived, then the Company may be unable to meet its financial
obligations as they fall due and therefore the Company may have to take
appropriate insolvency proceedings. The Board considers that, in the event of
insolvency, distributions, if any, to unsecured creditors may represent only a
small fraction of their unsecured liabilities and there is unlikely to be any
return to shareholders.
Interim results
The Company expects to announce its results for the six months to 30 September
2002 on 12 December 2002.
Contacts:
Andrew Dowler, Tel: 0207 831 3113
Financial Dynamics
Notes:
1. The loan is guaranteed by British Energy plc, British Energy
Generation (UK) Limited, British Energy Generation Limited, British
Energy Power and Energy Trading Limited, British Energy Investment
Limited, District Energy Limited, British Energy International Holdings
Limited, British Energy US Holdings Inc., British Energy L.P., British
Energy (Canada) Limited and Bruce Power Investments Inc.
2. Security for the HMG Facility has been given by British Energy
plc (fixed and floating charge debenture and share pledge), British
Energy Power and Energy Trading Limited (fixed and floating charge
debenture), British Energy Generation Limited (fixed and floating charge
debenture and fixed charge over nuclear sites), District Energy Limited
(fixed and floating charge debenture), British Energy Generation (UK)
Limited (fixed and floating charge debenture, charge over nuclear sites
and share pledge), British Energy International Holdings Limited (fixed
and floating charge debenture and share pledge), British Energy (Canada)
Limited (the holding company of the group's Canadian Interests) (share
pledge), British Energy Investment Limited (fixed and floating charge
debenture) and British Energy US Holdings Inc., (the holding company of
the group's United States interests) (share pledge).
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 12, 2002 BRITISH ENERGY PLC
By:____Paul Heward____
Name: Paul Heward
Title: Director - Investor Relations