EUROTUNNEL INTERIM COMBINED ACCOUNTS AT 30 JUNE 2004
 
Balance Sheet 30 June 30 June 31 December
 2004 2003 2003
(£000)
 
ASSETS
Tangible fixed assets
Concession fixed assets 7,381,924 8,785,187 7,424,826
Other fixed assets 1,964 2,101 2,032
Total tangible fixed assets 7,383,888 8,787,288 7,426,858
Financial fixed assets
Shares 2,115 107 1,165
Others 16,372 15,742 16,040
Total fixed assets 7,402,375 8,803,137 7,444,063
Stocks 7,118 16,296 8,830
Trade debtors 40,876 51,561 46,062
Other debtors 15,569 15,387 14,258
Other financial debtors 512,795 611,611 541,666
Investments and liquid funds 175,471 202,195 212,206
Total current assets 751,829 897,050 823,022
Prepaid expenses 49,328 54,435 52,592
Total assets 8,203,532 9,754,622 8,319,677
SHAREHOLDERS' FUNDS AND
LIABILITIES
Issued share capital 285,400 264,160  285,398
Share premium account 2,368,389 2,126,708 2,368,387
Other reserve 3,483 3,483 3,483
Profit and loss account
reserve (1,635,097) (300,872) (300,872)
Loss for the period (82,185) (17,075) (1,334,225)
Exchange adjustment reserve 227,904 130,983 77,016
Total shareholders' funds 1,167,894 2,207,387  1,099,187
Provisions 101,329 94,452 99,508
Loan notes 1,009,324 1,126,872 950,646
Loans 5,088,328 5,365,336 5,289,297
Accrued interest 94,531 131,290 124,922
Overdrafts 8 1 0
Other financial creditors 512,795 611,611 541,666
Other creditors 200,885 184,537 191,767
Total creditors 6,905,871 7,419,647 7,098,298
Deferred income 28,438 33,136 22,684
Total shareholders' funds and
liabilities 8,203,532 9,754,622 8,319,677
Exchange rate €/£ 1.491 1.443 1.419
 
Profit and loss account 6 months to 6 months to Year to
(£000) 30 June 2004 30 June 2003 31 December 2003
 
Turnover
Turnover and other operating
income 260,530 272,064 566,376
Other income 8,525 7,640 17,568
Total turnover 269,055 279,704 583,944
Operating expenditure
Materials and services (net) 84,883 76,943 162,329
Staff costs 52,231  52,230 104,720
Depreciation 50,805 58,929 124,173
Provisions 10,848 10,907 21,616
Other operating charges 229  351 1,322
Total operating expenditure 198,996 199,360 414,160
Operating profit 70,059 80,344 169,784
Financial income
Interest receivable and
similar income  16,553 25,465 41,327
Profit on disposal of
investments 244 265 408
Exchange differences 2,151 906 1,270
Total financial income 18,948 26,636 43,005
Financial charges
Interest payable and similar
charges 162,776 184,837 359,490
Exchange differences 351 1,761 2,653
Total financial charges 163,127 186,598 362,143
Financial result (144,179) (159,962) (319,138)
Exceptional result (8,042) 62,566  * (1,184,847)
Taxation 23 23 24
Result
Loss for the period (82,185) (17,075) (1,334,225)
Loss per Unit (3.2p) (0.7p)  (56.5p)
Fully diluted loss per Unit (2.8p) (0.2p) (53.3p)
Exchange rate €/£ for the
period 1.496 1.446 1.435
* Including an exceptional impairment of £1,300 million in December 2003.
 
Cash flow statement 6 months to 6 months to Year to
(£000) 30 June 2004 30 June 2003 31 December 2003
 
Profit before depreciation,
provisions, interest and tax 131,712 150,180 315,573
Exchange adjustment * 167 145 1,539
Decrease/(increase) in stocks 1,522 (2,241) 5,281
(Increase)/decrease in
debtors (5,975) (13,139) 1,829
(Decrease)/increase in
creditors (3,387) 2,575 (9,918)
Net cash inflow from
operating activities  124,039 137,520 314,304
Taxation (23) (23) (24)
Returns on investments and
servicing of finance (135,064) (134,350) (277,878)
Capital expenditure (15,989) (16,226) (24,717)
Other non-operating cash
flows (4,355) 2,716 20,391
Cash (outflow)/inflow before
financing (31,392) (10,363) 32,076
Financing (774) (34,006) (68,100)
Decrease in cash in the
period (32,166) (44,369) (36,024)
Exchange rate €/£ 1.491 1.443 1.419
* The adjustment relates to the restatement of the elements of the Profit and
Loss Account at the exchange rate ruling at the period end.
 
Notes
 
1. The Group Balance Sheet, Profit and Loss Account and Cash Flow Statement
consist of the combination of the consolidated accounts of Eurotunnel plc
together with Eurotunnel SA and its subsidiaries, applying exchange rates as
described in the Annual Report and Accounts. These interim accounts do not
constitute statutory accounts within the meaning of Section 240 of the UK
Companies Act 1985.
 
2. Basis of preparation
 
These interim accounts have been prepared in accordance with accounting
principles applicable in France, under the historical cost convention and on the
going concern basis. The accounting principles and bases of calculation used for
these interim accounts are consistent in all significant aspects with those used
for the Group's accounts for the year ended 31 December 2003.
 
2.1 Uncertainties
 
The Group is subject to two uncertainties: the ability to continue as a going
concern and the carrying value at which the Group's assets are recorded in the
accounts.
 
2.1.1 Going concern
 
The continuation of the Group as a going concern is dependent upon the Group's
ability to put in place a refinancing plan or, if not, to obtain an agreement
with the Lenders under the existing Credit Agreements within the next two years.
In the absence of a refinancing plan or other agreement, Eurotunnel's liquidity
position remains protected until the end of 2005 as interest which cannot be
paid in cash can be settled by way of Stabilisation Advances. The amounts
available to be drawn against these Advances, which bear no interest before
2006, amount to £100 million in the period from 1 February 2004 to 31 January
2005 and £60 million in the period from 1 February 2005 to 31 January 2006.
 
If the Group was unable to put in place a refinancing plan or to obtain an
agreement from the Lenders within the existing arrangements within two years,
the Group's ability to trade as a going concern would not be assured and certain
adjustments would need to be made to the accounts. Those adjustments would
relate to the impairment of assets to their net realisable value and the
recognition of additional liabilities. Such amounts cannot be measured at
present. Within the French and British legal frameworks, the Lenders may seek to
exercise the right to substitution included in the Concession Agreement and the
securities over assets set out in the Credit Agreements.
 
On the basis of information currently available, and in view of the current
outlook and the attractive terms of conversion, the Joint Board expects that a
recommendation will be made to the shareholders in 2005, for the conversion of
all Stabilisation Advances and Stabilisation Notes into Units. The terms of
conversion would be based on a unit price for EPLC of £0.57 and a unit price for
ESA of €0.87, subject to certain specified adjustments including adjustments for
fluctuations in the €/£ exchange rate.
 
2.1.2 Asset carrying value
 
The accounts for the year ended 31 December 2003 included an impairment charge
of £1.3 billion, reflecting the value of discounted projected future operating
cash flows, an assumed level of debt over the period of the Concession and a
market interest rate which corresponds to an implicit discount rate of 7%. These
calculations, aimed at determining a value in use of the assets, were performed
in the context of the going concern uncertainty. They were based on operating
cash flows, which for the purposes of the valuation, assumed no changes to
existing contracts in line with the going concern assumption. The valuation
assumed a level of debt £1.3 billion lower than the current level which would
imply an equivalent increase in the level of equity.
 
In the six months ended 30 June 2004, the operating performance of the Group has
been worse than the cash flow forecasts that were used for the calculation of
the value in use of the assets as at 31 December 2003. In addition, there has
been an upward pressure on interest rates. Group management believe that it is
too early to conclude on whether the conditions experienced in the six months
ended 30 June 2004 are short term or are indicative of a more permanent trend.
 
Furthermore, the Group has not yet concluded what impact its intended actions to
increase revenues and reduce operating costs may have on its financial
projections and on the value of the assets in use.
 
In addition, the Group is currently working on a refinancing plan which could
lead to a different level of debt compared to that underlying the valuation
assumptions as at 31 December 2003.
 
In this context, the Group has not undertaken a revision of its financial
projections; this normally takes place during the second half of each year as
part of the preparation of the medium term plan of the Group. Therefore, the
impairment of the Group's assets booked as at 31 December 2003 has not been
reviewed as at 30 June 2004.
 
Relatively small changes in the assumptions used could lead to significant
changes in the value in use of the assets. As an example, and with all other
things being equal, a shortfall of £10 million per annum in future operating
cash flows or an increase in the implicit discount rate of 0.1% would reduce the
value in use of the fixed assets by approximately £150 million.
 
2.2 Railways dispute
 
The arbitration relating to the claim by the Railways in respect of their
contribution to Eurotunnel's operating costs is continuing. Eurotunnel remains
confident in the outcome of these proceedings and has therefore not made a
provision in these interim financial statements or in the Group's financial
projections. A ruling from the arbitration Tribunal is expected in the fourth
quarter of 2004.
 
3. Loss per Unit
(pence) 6 months to 6 months to Year to
  30 June 2004 30 June 2003 31 December 2003
 
Basic (3.2) (0.7) (56.5)
Pre-exceptional result (2.9) (3.4) (6.3)
Fully diluted ** (2.8) (0.2) * (53.3)
* Including conversion of Stabilisation Notes and excluding consequences of future
financial refinancing (see note 2).
** Including conversion of Stabilisation Notes and Advances and excluding consequences
of future financial refinancing (see note 2).
 
The basic loss per Unit for the six months is calculated using the weighted
average number of Units in issue during the period of 2,546,110,049
(30 June 2003: 2,362,552,054) and the loss for the period of £82,185,000
(30 June 2003: loss of £17,075,000).
 
The pre-exceptional loss per Unit is calculated using the above weighted average
number of Units in issue, but using the loss of £74,143,000 (30 June 2003:
£79,641,000) before the exceptional loss of £8,042,000 in the period
(30 June 2003: exceptional profit of £62,566,000).
 
The fully diluted loss per Unit, excluding the consequences of any future
financial refinancing (see note 2), is calculated using the fully diluted number
of Units of 2,986,407,244 (30 June 2003: 2,560,026,652) which at 30 June 2004
includes the conversion of Stabilisation Notes, Stabilisation Advances and the
exercise of share options based on market conditions at the balance sheet date,
and the adjusted loss for the period of £82,185,000 (30 June 2003: loss of
£5,494,000).
 
4. Share capital and share premium account
(£000) EPLC ESA Total
 
Share capital (Units)
At 1 January 2004
2,546,097,327 shares of £0.01 each 25,460 - 25,460
2,546,097,327 shares of €0.15 each - 259,938 259,938
 25,460 259,938  285,398
Issued during the period:
16,886 shares of £0.01 each 0 - 0
16,886 shares of €0.15 each - 2 2
  0 2 2
At 30 June 2004
2,546,114,213 shares of £0.01 each 25,460 - 25,460
2,546,114,213 shares of €0.15 each - 259,940 259,940
At 30 June 2004  25,460 259,940 285,400
 
Share premium account
At 1 January 2004 1,232,767 1,135,620 2,368,387
Premium on shares issued during the period 2 0 2
At 30 June 2004  1,232,769 1,135,620 2,368,389
 
During the period 16,886 Units were issued following the exercise of options
subsequent to the departure of certain beneficiaries, in accordance with the
rules of the scheme.
 
Following the approval given by the Annual General Meeting of EPLC and ESA on
6 May 1999, 15,047,456 share options were granted to 436 beneficiaries at £0.35
or €0.52 on 27 February 2004. In addition, 264 beneficiaries received 3,443,186
options at £0.28 under the UK ShareSave scheme.
 
5. Movement on reserves
(£000) Other Profit and Exchange
 reserve * Loss Account Adjustment reserve
 
At 1 January 2004 3,483  (1,635,097) 77,016
Loss for the period - (82,185) -
Translation adjustments - - 150,888
At 30 June 2004 3,483 (1,717,282) 227,904
* This non distributable reserve is the consequence of the conversion of ESA's
share capital into euros in 2001.
 
6. Loan notes, loans and overdrafts
(£000) 31 December 31 December Deferred Repurchase Settlement 30 June 30 June
 2003 2003 interest of debt of 2004 2003
 conversion interest**
 as restated *  as as
 reported reported reported
Equity 0 0 0 260,530
Notes
Participating
Loan Notes 873,760 852,021 852,021 866,273
Stabilisation
Notes 76,886 74,966 82,337 157,303 69
Total Loan
Notes
Principal 950,646 926,987 82,337 0 0 1,009,324 1,126,872
EDL, Senior
and 4th
Tranche Debt 373,993 365,096 365,096 370,928
Tier 1A 740,000 740,000 740,000 740,000
Debt
Junior Debt 3,264,673 3,175,267 (1,972) 3,173,295 3,235,211
Resettable
Advances 479,133 463,805 (6,165) 457,640 525,696
Interest not
paid in
cash
Stabilisation
Advances 352,238 343,469 8,828 352,297 339,399
Deferred
Interest 79,260 77,282 (82,223) 4,941 0 154,102
Total loans 5,289,297 5,164,919 (82,223) (8,137) 13,769 5,088,328 5,365,336
Accrued
interest
Loan Notes 6,548 6,385 (681) 5,704 10,759
Loans 118,374 115,997 (27,170) 88,827 120,531
Total accrued
interest 124,922 122,382 0 0 (27,851) 94,531 131,290
Overdrafts 0 0 8 8 1
 
 Total 6,364,865 6,214,288 114 (8,137)  (14,074) 6,192,191 6,623,499
* The debt at 31 December 2003 has been recalculated at the exchange rate of 30 June 2004 in
order to facilitate comparison.
** Interest includes accrued interest during the period less interest paid in cash or settled
using the Stabilisation Facility.
 
In January 2004, £3.7 million plus €7.8 million of Stabilisation Advances were
created in respect of interest due on Resettable Advances which could not be
paid from free cash flow. All deferred interest due on the Equity Notes was
converted into Stabilisation Notes as at 26 January 2004.
 
In July 2004, £3.5 million plus €5.6 million of Stabilisation Advances were
created in respect of interest due on Resettable Advances which could not be
paid from free cash flow. All interest due on the Junior Debt at 25 July 2004
(£64.1 million plus €44.4 million) was paid in cash. A further £6.7 million and
€31.2 million was paid in respect of the floor hedging contracts.
 
7. Other financial debtors and creditors
 
Eurotunnel owns nine leasing companies in the UK, which have a total outstanding
debt at 30 June 2004 of £513 million (30 June 2003: £612 million). This debt is
fully secured on an equivalent amount of lease receivables due to the companies.
Through these transactions Eurotunnel has been able to obtain immediate value in
cash for a proportion of its tax losses by the future surrendering of such
losses by way of group relief to the leasing companies. Included in interest
receivable and similar income for the 6 months to 30 June 2004 is an amount of
£14 million (30 June 2003: £23 million) arising in the leasing companies. This
is matched by an equivalent amount in interest payable.
 
8. Exceptional loss
 
A net exceptional loss of £8 million was incurred in the first half of 2004
relating principally to the refinancing projects and to the retrocession of
roads and tracks in the area surrounding the French terminal. This was partly
offset by a profit of £2 million generated by the repurchase of debt at a
discount to its face value.
 
9. Significant differences between French and UK Generally Accepted
Accounting Principles ('GAAP')
 
The Eurotunnel Group accounts comply with French GAAP which differ in certain
aspects from UK GAAP. The significant differences, which affect the profit
before taxation and shareholders' funds and are described in detail in note 22
of the Group's full accounts for the year ended 31 December 2003, arise in the
treatment of the consolidation of quasi-subsidiaries and of equity issue costs.
Had the accounts been prepared under UK GAAP, the loss before tax would have
remained the same but shareholders' funds at 30 June 2004 would have increased
by £250 million.
 
10. International Financial Reporting Standards (IFRS)
 
The Combined Accounts of the Eurotunnel Group are currently prepared in
accordance with French General Accepted Accounting Principles and laid down by
law ndegrees99-02 of the 'Comite de la reglementation comptable'. As from
1 January 2005, in accordance with European law ndegrees1606/2002 of
19 July 2002, the Eurotunnel Group will be required to adopt IFRS. The
Eurotunnel Group has therefore commenced a project with the aim of adopting
these standards and adapting its information and consolidation systems so as to
be in accordance with the new requirements relating to the presentation of its
financial information for the 2005 changeover.
 
The main differences identified, at this stage, between the French accounting
principles and IFRS likely to have a significant impact on the financial
position of the Group are in relation to tangible assets and financial
instruments.
 
The work aimed at establishing the impact of the application of IFRS will
continue in the second half of 2004.