Scottish Power PLC
24 May 2005
SCOTTISH POWER PLC
PRELIMINARY RESULTS 2004/05 AND SALE OF PACIFICORP
Sale of PacifiCorp
• Sale of PacifiCorp to MidAmerican for $9.4 billion
• Completion expected in 12-18 months
• Equity injection net of dividends of $285 million prior to March 2006
• Impairment charge of £927 million
• Intend to return approximately $4.5 billion of net proceeds to
ScottishPower shareholders
• Sale and return of capital expected to be earnings accretive for
ScottishPower from completion
• Focus on continued growth and development of Infrastructure Division, UK
Division & PPM Energy
Preliminary Results 2004/05
• Profit before tax* up 10% to over £1 billion, for the first time
• Operating profit* for our continuing three businesses up 23%
• Earnings per share* of 40.22 pence for the year, up 10%
• Earnings per share* of 11.64 pence for the fourth quarter, up 10%
• Dividends per share of 22.50 pence, up 10%
• Dividends for each of the first three quarters of 2005/06 of 5.20
pence, up 5%
Note: Items marked * are excluding goodwill amortisation and the exceptional
item. ScottishPower management assesses the performance of its businesses by
adjusting UK GAAP statutory results to exclude items it considers to be
non-operational or non-recurring in nature. In the periods reviewed, goodwill
amortisation and the exceptional item have been excluded. We have, therefore,
focused our presentation of business performance on the results excluding these
items. Unless otherwise stated 'year' relates to the year to 31 March 2005, and
'quarter' relates to the three months to 31 March 2005.
Ian Russell, ScottishPower Chief Executive, said:
'Along with our financial results, we are today announcing our decision to sell
PacifiCorp and focus our management and capital on the Infrastructure Division,
UK Division and PPM Energy.
Following our Interim results in November, we conducted a strategic review of
PacifiCorp including a review of its prospects, capital requirements and profile
of returns. As a result of this review, we are announcing today the sale of
PacifiCorp to MidAmerican for $9.4 billion. We intend to return approximately
$4.5 billion of the net proceeds to shareholders following the completion of the
sale which, subject to regulatory and shareholder approval, is anticipated to
take 12 to 18 months. The sale and return of capital is expected to enhance our
return on capital and is expected to be earnings accretive from completion.
We are also announcing our results for the year to 31 March 2005. We have
achieved profit before tax* of over £1 billion for the first time, an increase
of 10% compared with the prior year. These results reflect a 20% growth in our
UK customer numbers complemented by investments in generation, continued
efficiency in our UK network business, the further returns from our US
competitive wind and gas storage investments, and lower interest costs. These
contributions more than made up for the lower profit at PacifiCorp.
The Infrastructure Division, UK Division and PPM Energy are strong businesses
that have driven our recent profit growth. They are also businesses in which we
see significant further opportunities for investment that will deliver enhanced
growth and returns well in excess of our cost of capital. Over the last two
years operating profit, excluding goodwill amortisation, in these businesses has
increased by 38%.
In summary, we have today announced the sale of PacifiCorp to MidAmerican for
$9.4 billion with approximately $4.5 billion of the net proceeds to be returned
to shareholders. Our full year results show profit before tax*, earnings per
share* and dividends per share all up by 10%. We have set the dividend for each
of the first three quarters of 2005/06 off the higher than expected base for
dividends this year, at 5.20 pence per share, representing an increase of 5%
from 2004/05, up from 4.2% for the first three quarters of last year, compared
to 2003/04. Looking ahead, we remain committed to delivering our strategy of
investing for growth and improving operational performance.'
SALE OF PACIFICORP
Introduction
In November 2004, the Board began a strategic review of PacifiCorp as a result
of its performance and the significant investment it required in the immediate
future.
Our review examined PacifiCorp's future capital investment requirements, the
likely development of its regulatory regimes, the scope for further operational
efficiencies and improvements and the scale and timing of further improvements
in its achieved rates of return. We also considered the opportunities for
growth and returns that exist in our three other businesses.
The Board concluded that, in the light of the scale and timing of the capital
investment required in PacifiCorp and the likely profile of returns from that
investment, shareholders' interests were best served by a sale of PacifiCorp and
return of capital to shareholders.
The Board therefore announces today that it has entered into a binding agreement
for the sale of PacifiCorp to MidAmerican for $9.4 billion. The Board intends
to return approximately $4.5 billion of the net proceeds of $5.0 billion from
the sale of PacifiCorp, to shareholders. This capital return is anticipated to
occur following completion of the sale. The details of the capital return will
be communicated to shareholders in due course.
The sale of PacifiCorp enables us to focus our management and capital on the
continued development of the Infrastructure Division, UK Division and PPM
Energy. These businesses have driven our profit growth over the last two years
and delivered overall returns ahead of our cost of capital. They have
substantial opportunities for continued growth through capital investment and
improved operational performance.
Financial Impact of the Sale and Return of Capital
MidAmerican will be acquiring the equity of PacifiCorp for $5,109.5 million and
will be assuming net debt at completion expected to be approximately $4.3
billion which gives a total sale price for PacifiCorp of $9.4 billion. Allowing
for that net debt, with no material tax cost expected and after estimated costs,
net proceeds from the sale are expected to be approximately $5.0 billion.
ScottishPower intends to return approximately $4.5 billion of the net proceeds
from the sale to shareholders following the completion of the sale. The sale
and return of capital is expected to be earnings accretive for ScottishPower
from completion.
An exceptional impairment charge of £927 million, under UK GAAP, has been made
in ScottishPower's results for the year ended 31 March 2005. This impairment
provision has been made to reduce the book value of PacifiCorp down to its
expected net realisable value. Pending completion of the sale, PacifiCorp will
be treated as a discontinued operation in the financial statements of
ScottishPower. The impairment amount excludes foreign exchange gains of £485
million, achieved to date, which will be reflected in ScottishPower's Income
Statement under IFRS on completion of the sale of PacifiCorp to MidAmerican.
Going forward, we expect to continue our current dividend policy of growing
dividends broadly in line with earnings. Our financial strategy will be to
retain an A category credit rating for the group and our principal operating
subsidiaries. To achieve this rating, on completion of the sale, the group will
target credit ratios of adjusted FFO/Net Debt of greater than 25% and FFO/
Interest cover of more than five times. ScottishPower will work closely with the
rating agencies in order to ensure its rating objectives are achieved.
For the year ended 31 March 2005, PacifiCorp's UK GAAP profit before tax,
excluding goodwill amortisation and the exceptional item, was $581 million and
net assets were $4.1 billion as at 31 March 2005. From the perspective of
PacifiCorp, its unaudited earnings under US GAAP were $250 million for the same
period.
Details of the PacifiCorp Sale
The sale is subject to Securities and Exchange Commission, Federal Energy
Regulatory Commission, Federal Trade Commission and Nuclear Regulatory
Commission approvals at Federal level, without conditions that would have a
material adverse effect on the PacifiCorp business. In addition it is subject
to approval at State level in Oregon, Utah, Washington, Wyoming, California and
Idaho provided such state approvals are not subject to conditions whose effect
would be meaningfully adverse to the business of PacifiCorp. The Directors of
ScottishPower anticipate that such approvals should be forthcoming within 12 to
18 months. The sale is subject to further conditions to completion which
include the representations and warranties of the parties remaining true and
correct, the parties performing their covenants and obligations under the
agreement in all material respects, and no material adverse effect in relation
to PacifiCorp having occurred. The agreement may be terminated prior to
completion by mutual agreement of the parties or otherwise in certain
circumstances including material breach of the representations, warranties or
covenants of the parties, ScottishPower shareholders not approving the sale or
the sale not having been completed by 23 May 2006 or in certain circumstances by
17 February 2007 and (by MidAmerican) where the Board of ScottishPower withdraws
or adversely modifies its recommendation of the sale. ScottishPower has also
agreed that it will not initiate, solicit or engage in negotiations concerning
any alternative proposals relating to PacifiCorp other than in certain specified
circumstances.
ScottishPower and MidAmerican have agreed certain break fee arrangements. In
summary, ScottishPower has agreed to pay MidAmerican a break fee of $10 million
if, prior to ScottishPower shareholders approving the sale, an alternative
proposal relating to PacifiCorp or a proposal for the acquisition of control of
ScottishPower is made or announced, is rejected by ScottishPower, and
ScottishPower shareholders do not subsequently approve the sale at the relevant
shareholders' meeting or in any event before 1 September 2005 and the Agreement
with MidAmerican is as a result terminated. If the break fee would otherwise
become payable then its amount is increased to (a) $100 million (in total) if
the ScottishPower Board instead of rejecting such proposal, recommends it or
withdraws or adversely modifies its recommendation of the sale and (b) $250
million (in total) if within a year of the agreement with MidAmerican
terminating, ScottishPower enters into an agreement with respect to or
consummates an alternative proposal relating to PacifiCorp or a proposal for the
acquisition of control of ScottishPower. The maximum break fee payable by
ScottishPower is therefore $250 million. A break fee of $250 million is payable
by MidAmerican to ScottishPower if ScottishPower terminates the Agreement as a
result of MidAmerican agreeing to or announcing a proposal to acquire certain
competing utility and energy assets if the same directly or indirectly results
in the failure to satisfy certain regulatory conditions to the sale and/or
creates or imposes additional conditionality or costs which result in
MidAmerican choosing not to complete or to terminate the Agreement.
Prior to sale it is envisaged that PacifiCorp will be managed and developed as
currently, with no material changes to its operating plans, management
structures, or boards.
Between now and closing of the sale, ScottishPower has agreed to invest
additional equity in PacifiCorp to fund ongoing capital expenditure in line with
PacifiCorp's current plan. Pursuant to these arrangements, ScottishPower will
invest $500 million during the financial year 2005/06. In addition
ScottishPower has agreed to make further investments during the financial year
2006/07 of up to $525 million, contributed monthly, although ScottishPower will
be fully compensated for any such payments made in respect of the financial year
2006/07. Between now and the closing of the sale, ScottishPower is entitled to
dividends from PacifiCorp in line with PacifiCorp's current plan. Pursuant to
these arrangements, it is expected that, ScottishPower will receive $215 million
of dividends during the financial year 2005/06, and $242 million of dividends
during the financial year 2006/07, these amounts to accrue monthly.
Due to the size of the sale, the approval of ScottishPower's shareholders is
required. Accordingly, a circular containing details of the sale and a notice
convening a general meeting will be posted to shareholders in due course. It is
expected that the details of the return of capital will be sent to shareholders
around the time of completion of the sale. The sale, which is conditional on
shareholders' approval and on regulatory clearance, is expected to complete in
12 to 18 months.
PacifiCorp is one of the lowest-cost electricity producers in the United States,
providing more than 1.6 million customers with reliable, efficient energy.
PacifiCorp works to meet growing energy demand while protecting and enhancing
the environment. PacifiCorp has interests in more than 8,300 MW of generation
capacity from coal, hydro, renewable wind power, gas-fired combustion turbines
and geothermal plants. PacifiCorp operates as Pacific Power in Oregon,
Washington, Wyoming and California; and as Utah Power in Utah and Idaho.
PacifiCorp merged with ScottishPower in 1999.
Strategy for ScottishPower
Following the sale, ScottishPower will continue to develop its Infrastructure
Division, UK Division and PPM Energy, where ScottishPower has strong positions,
combined with a market and regulatory environment that it is anticipated will
continue to provide attractive opportunities for organic growth and investment.
These businesses have also driven ScottishPower's recent profit growth and offer
the most attractive returns. In aggregate, these three divisions have shown
growth in operating profit of 38% over the last two years.
The Infrastructure Division can benefit from increases in allowed revenue as a
result of the recently concluded Distribution Price Control Review and
Transmission Price Control Extension. The resulting price controls provide
increased revenue allowances for taxation and pension costs, reflect higher
capital investment levels and introduce new incentive targets. The Division has
geared up across its activities to achieve and, where possible, outperform those
new targets and to deliver the increased investment programme. We expect
capital expenditure in the Division to amount to approximately £1.7 billion to
2010, with 40% of that figure associated with growth in the business.
In our UK Division, over the medium-term, we aim to continue to grow profitably
our customer base and generation assets. The growth in customer numbers is
expected to deliver increased earnings via higher revenues and a reduction in
our average cost to serve. We will support this growth in customer numbers with
further investment in generation and gas storage and aim to invest approximately
£1.4 billion of capital to 2010. This includes the continued expansion of our
windfarm portfolio, where we aim to invest £1 billion by 2010. Some 75% of UK
Division's capital expenditure is expected to support growth, with targeted
returns immediately following completion of each project for new investments of
at least 300 basis points above the Division's weighted average cost of capital.
At PPM Energy we expect to see continued strong growth in the medium-term coming
from our investments in windfarms and gas storage. Approximately £1.4 billion
of capital is expected to be invested to 2010, almost all for growth, including
£950 million for new wind capacity, taking our total to at least some 2,300 MW
and £460 million in the same period to increase our gas storage capacity to 125
BCF. Returns of at least 300 basis points above PPM Energy's weighted average
cost of capital are expected immediately following completion of each project.
preliminary results 2004/05
In addition to announcing the sale of PacifiCorp to MidAmerican, we are also
reporting our Preliminary results for 2004/05.
Quarter 4 Full Year
2004/05 2003/04 £ million 2004/05 2003/04
1,938 1,748 Turnover 6,849 5,797
(617) 292 Operating (loss) / profit 153 1,023
339 321 Operating profit excluding goodwill & exceptional 1,197 1,151
(664) 239 (Loss) / profit before tax (29) 792
292 269 Profit before tax excluding goodwill & exceptional 1,015 920
(40.54) 9.02 (Loss) / earnings per share (pence) (16.83) 29.40
11.64 10.63 Earnings per share excluding goodwill & exceptional (pence) 40.22 36.40
7.65 6.25 Dividends per share (pence) 22.50 20.50
We have achieved profit before tax* of over £1 billion for the first time, an
increase of 10% compared with the prior year. These results reflect a 20%
growth in our UK customer numbers complemented by investments in generation,
continued efficiency in our UK network business, further returns from our US
competitive wind and gas storage investments, and lower interest costs. These
contributions more than made up for the lower profit at PacifiCorp.
We continue to see very attractive opportunities for profitable growth in our UK
network business, where the finalisation of the Distribution Price Control
Review places us in a good position to continue to outperform the targets and
enhance returns. We are the leading developer of wind generation in the UK and
the US with approximately 1,000 MW of plant in operation and some 700 MW of
plant to be constructed in the remainder of 2005.
PacifiCorp's financial performance was impacted by milder temperatures and lower
thermal generation availability in the first half, and a lack of rainfall and
snow held back the contribution from our hydroelectric generation plants in the
second half. The lower than normal snow and rainfall over the winter months
will also reduce hydroelectric generation availability during the first six
months of 2005/06.
The Infrastructure Division delivered an increase in operating profit of 6% in
the year and concluded the Distribution Price Control Review and Transmission
Price Control Extension. The Division will benefit from increases in allowed
revenue as a result. The price controls also introduce challenging new
incentive targets which will require further improvements in operational
performance. The Division is focused on outperforming these new targets and
delivering the increased investment programme.
In the UK Division the investment in generation plant has complemented
significant growth in customer numbers, up 865,000 this year to over 5.1
million. Together, these have contributed to the substantial increase of some
80% in the operating profit* of the Division. We are continuing to grow our
customer numbers, albeit at a slower rate than experienced in the first nine
months of 2004/05, while maintaining our focus on gaining profitable customers
that will create shareholder value. Generation has started at the Black Law
windfarm and construction is underway at the Beinn Tharsuinn and Coldham
windfarms. The UK Division has continued to demonstrate significant progress
toward its renewable energy strategy.
PPM Energy continued to grow rapidly with operating profit* rising 60% to £59
million, for the year, with additional earnings delivered through Production Tax
Credits on wind output. In the year we acquired Atlantic Renewable Energy
Corporation in order to expand on the east coast of the US. This acquisition
and the recently announced Shiloh and Maple Ridge windfarms, together with
windfarms at Klondike II, Trimont and Elk River, gives PPM Energy 574 MW due
on-line by 31 December 2005, all of which are expected to be immediately
earnings enhancing following completion.
INVESTING FOR GROWTH
We continue to execute our investment strategy across the group and invested
£1.4 billion during the year, with £0.8 billion (60%) invested for growth.
Investments in our regulated businesses aim to achieve at least the allowed rate
of regulatory returns, while our competitive businesses are expected to achieve
returns of at least 300 basis points above each division's weighted average cost
of capital.
PacifiCorp's net capital investment was £480 million for the year, with £231
million (48%) invested for organic growth. Of this, £136 million was invested
in building new generation. The first phase of the 525 MW Currant Creek plant,
representing 280 MW, will be operational this summer with full operations
scheduled to begin in summer 2006. Construction at the 534 MW Lake Side plant
is scheduled to begin this summer. A further £95 million was invested in new
connections and network reinforcement.
Infrastructure Division's net capital investment was £267 million for the year,
with £67 million (25%) invested for organic growth, including expenditure on the
connection to the Black Law windfarm and other new customer connections. Other
organic investment focused on network reinforcement projects, such as the £30
million, five-year, Liverpool city centre regeneration programme and initial
spend on the Renewable Energy Transmission Study upgrade programme required to
accommodate the connection of renewable generation in Scotland. As a result of
the Distribution Price Control Review, capital expenditure allowances increase
by 55% over the next five years, against the previous control period, with some
1,800 km of overhead lines due to be built. New initiatives in operational
excellence will also help our drive towards a 30% improvement in network
performance, resulting in reduced fault duration for our customers and
minimising risk of financial penalty from Ofgem. We also plan to invest some
£190 million in the first phase of the Transmission Investment for Renewable
Generation.
The UK Division's net capital investment was £546 million, including £454
million (83%) invested for growth. Growth investment included the acquisitions
of the 800 MW Damhead Creek power plant for £320 million and the remaining 50%
of the 400 MW Brighton power plant for £71 million. Other growth investment of
£63 million related primarily to our windfarm developments, notably the largest
consented UK onshore windfarm project at Black Law. Development of the project
continues, with completion of approximately 100 MW scheduled for autumn this
year. Construction is also underway at the 30 MW windfarm at Beinn Tharsuinn
and the 16 MW windfarm at Coldham.
PPM Energy's net capital investment for the year was £84 million, with £79
million (94%) of this invested for growth, primarily on new wind generation
projects where build is ongoing. For 2005/06 PPM Energy has announced 574 MW of
new windfarm investments, comprising 75 MW Klondike II, 100 MW Trimont, 150 MW
Elk River, 150 MW Shiloh and 50% of the 198 MW joint venture Maple Ridge
windfarm in upstate New York, which is being developed along with Zilkha
Renewable Energy of Houston. Maple Ridge represents the first project in the
northeastern US associated with the PPM Atlantic Renewable acquisition. PPM
Energy's share of the capital investment is approximately $160 million and the
120 turbine windfarm is due to be completed this December. Once operational,
all of these projects are expected to be immediately earnings enhancing.
Looking ahead, we aim to invest further capital to 2010 of some £1.7 billion in
the Infrastructure Division including renewable infrastructure investment; £1.4
billion in generation and gas storage in the UK Division; and approximately £1.4
billion at PPM Energy on new wind and gas storage capacity.
IMPROVING OPERATIONAL PERFORMANCE
PacifiCorp
For the year, operating profit, excluding goodwill amortisation and the
exceptional item, was lower by £78 million at £542 million (down $29 million to
$914 million) due mainly to a net £61 million adverse translation impact from
the weaker US dollar, which has been substantially mitigated at an earnings
level by the benefits from our hedging policy. Retail revenue growth of $98
million was offset by both increased net power costs of $98 million and, as
expected, the reduction in deferred power cost recoveries of $44 million.
Deferred power cost recoveries will expire fully by the end of December 2005.
Underlying retail revenues improved due to regulatory rate increases and
customer growth, partly offset by lower customer usage, mainly due to the milder
weather. Although the contribution from hydroelectric resources was in line
with last year, it remained below expectations as a result of the unusually dry
conditions. The impact of lower thermal generation availability and related
increase in purchase volumes, together with higher fuel and market prices and
increased load volumes, all contributed to the rise in net power costs.
Operating efficiencies delivered $42 million of benefits and this more than
offset adverse other net revenue and cost movements of $37 million, which
increased largely as a result of higher labour-related and maintenance costs.
Non-recurring items were favourable by $10 million, as the $56 million
environmental provision release in the year more than offset $46 million of
non-recurring items in the prior year.
Initiatives directed at improving operational efficiency included steps to
significantly reduce future expected coal costs over the long-term by commencing
underground coal mining in Wyoming; to aid generation efficiency by improving
the management of plant overhauls and targeted capital expenditure programmes;
and to deliver cost savings by renegotiating operational and service level
agreements. In addition, customer service was enhanced following the
streamlining and automation of activities and, in April 2005, we opened another
new operations centre to facilitate the centralisation of call handling and to
provide rapid responses to outages for our customers. These initiatives
contributed to PacifiCorp delivering and exceeding its target of $300 million of
benefits set at the time of the merger.
In February 2005, the Utah Public Service Commission granted PacifiCorp
additional annual revenues of $51 million, based upon a forward-looking test
year, effective from 1 March 2005. Along with other awards earlier in the year
of $15 million in Washington and $9.25 million in Wyoming, this represents rate
case awards in the year of approximately $75 million of additional annual
revenue. On 5 May 2005, PacifiCorp filed a general rate case request in
Washington for approximately $39 million that also related to increased
operating costs.
PacifiCorp is also seeking to account for and recover power costs in Oregon and
Washington related to the unfavourable weather conditions. These requests
relate to the 2005 calendar year and are expected to be resolved early in 2006.
Recovery of any weather-related costs is expected to be made at a future date.
PacifiCorp has also requested power cost adjustment mechanisms ('PCAMs') inOregon and Washington. The proposed PCAMs are designed to be longer-term,
ongoing mechanisms that pass through to customers a portion of excess power
costs, or return to customers a portion of over-collected power costs. This
would enable power costs included within rates to be more closely aligned with
PacifiCorp's actual costs and assist in reducing earnings volatility.
Discussions on possible PCAMs are also underway in Utah and Wyoming.
Regulatory returns for PacifiCorp at September 2004, the end of the last
regulatory reportable period, were approximately 7% on a normalised basis
compared to approximately 8% at September 2003, as the period does not include
the increased revenue from the Utah general rate case settlement effective in
March 2005 and the Washington general rate case outcome from November 2004.
PacifiCorp now has licenses or settlements in place regarding seven out of nine
recent relicensing agreements. The relicensing of the Klamath River and
Prospect River systems remain to be settled.
In April 2005, PacifiCorp received a magistrate judge's opinion agreeing to
PacifiCorp's request to dismiss the $1 billion lawsuit filed against it in May
2004 by the Klamath tribes. In May 2005, the tribes filed objections to the
magistrate judge's opinion and the matter is now before a district court judge.
From a customer service perspective, the US Department of Energy ranked
PacifiCorp second in the nation in terms of the total number of customers
purchasing renewable power and third in terms of sales volumes. In July,
PacifiCorp was named best for overall customer satisfaction in a nationwide
survey of commercial and industrial customers by TQS Research, an improvement
from third place last year.
Infrastructure Division
For the year, operating profit increased by £23 million to £416 million, with
regulated revenues higher by £13 million mainly as a result of distribution
sales volume growth and favourable transmission prices, in line with allowed
revenues. Underlying net costs were favourable by £14 million mainly due to a
reduction in third party transmission charges and lower other net costs. This
upside, together with a net £4 million increase in one-off gains, including the
gain on disposal of gas assets, more than offset an £8 million increase in rates
and depreciation.
In March, we accepted the new licence conditions for the Distribution Price
Control Review over the next five years from 1 April 2005 and the Transmission
Price Control Extension for the next two years also from 1 April 2005. The
effect of the two reviews is to increase revenues by around £60 million in 2005/
06 mainly due to increased revenue allowances for taxation and pension costs and
also reflecting higher capital investment levels. They also introduce
challenging new incentive targets which will require further improvements in
operational performance in order to avoid penalties. The Division has geared up
across its activities to achieve and, where possible, outperform these new
targets and to deliver the increased investment programme.
Initiatives include deploying a greater proportion of the workforce to restore
customers to the network; improved scheduling and monitoring of repairs;
programmes targeted at the worst performing circuits; and a re-prioritised
maintenance programme.
On 1 April 2005, the British Electricity Trading and Transmission Arrangements
('BETTA') were successfully introduced with National Grid assuming operationalcontrol of the Great Britain ('GB') transmission system, including balancing ofgeneration and demand in Scotland. ScottishPower retains network ownership and
all associated responsibilities including development of the network.
Two storms in January affected approximately 77,000 customers across our licence
areas in Manweb and southern Scotland. Early deployment of emergency plans
ensured power restoration was highly effective and we received favourable
feedback from energywatch for our handling of these events.
During the year the system performance of one of our distribution businesses
outperformed the regulatory targets and, subject to the annual audit of system
performance data, will qualify for a one-off reward of approximately £3 million.
This reward will be reflected in allowed revenue for 2005/06.
UK Division
For the year, operating profit, excluding goodwill amortisation, was higher by
£79 million at £180 million. Electricity and gas margins improved by £198
million due to the growth in customer numbers combined with our investment in
generation, which delivered £137 million of this increase. The effective
management of our generation resource portfolio, including the benefit of our
rolling commodity procurement strategy, contributed the majority of the
remaining £61 million of margin growth. The substantial increase in customer
numbers contributed to higher customer capture, energy efficiency and customer
service costs of £45 million. Other net costs increased by £74 million
primarily due to £33 million of operating expenses relating to Damhead Creek and
Brighton and higher depreciation and debt provisioning movements.
Renewable development remains a key part of our business strategy and the
Division is the leading developer of wind generation in the UK with
approximately 3,000 MW in its renewable development pipeline, in addition to 158
MW that are operational and 142 MW under construction. We have entered into a
joint venture with the Co-operative group to build a 16 MW windfarm at Coldham
in Cambridgeshire. Construction is expected to be complete later this year. In
March, planning determination for an 18 MW windfarm at Wether Hill in Dumfries
and Galloway was given and construction will commence early in 2005/06. We have
also completed trials of co-firing of biomass at our Cockenzie power station and
have commenced full commercial burning. Co-firing trials have also begun at
Longannet. Overall these activities demonstrate the Renewables Obligation
Scheme is a successful mechanism that can deliver the Government's targets for
renewable power. We maintain our support for marine renewable power through our
relationship with Ocean Power Delivery, a leading developer of marine power.
As we have grown our portfolio of customers and assets, we continue to maintain
a good balance between our retail demand and our generation output. We are
maximising the returns from our generating plant by effectively utilising its
flexibility, which is increasingly important under the new BETTA market
arrangements. Our effective forward purchasing strategy for gas and coal has
helped to maintain a competitive cost base for plant and customers, whilst also
helping to protect us from wholesale price volatility. We are substantially
covered across our commodity requirements for the next two years and have
secured access to competitively priced low-sulphur coal from the international
market, which will be delivered to our plant via our highly competitive
end-to-end coal logistics deal with Clydeport.
We have successfully adapted to the new arrangements under BETTA, and we are
capturing the commercial opportunities that the new arrangements present.
However, we continue to have concerns with the GB transmission charging
arrangements introduced with BETTA and have therefore commenced Judicial Review
proceedings with respect to Ofgem's decision to approve the current GB charging
methodology.
The 6 Sigma business transformation programme that was originally adopted in our
supply activities was extended to our generation activities in the year and, in
total, delivered revenue and cost savings of £15 million this year. In April
2005, we received a 'Best in Class Award' at the European 6 Sigma IQ Awards in
recognition of the successful delivery of a project to improve significantly
customer accounts set-up time. The benefits of the improvements in our customer
service provision have also been evidenced by the results seen in two customer
satisfaction studies. ScottishPower came top of Datamonitor's annual survey of
Industrial and Commercial customers and was ranked highest for price and value
in J.D. Power's domestic gas market award.
PPM Energy
For the year, operating profit, excluding goodwill amortisation, increased by
£22 million to £59 million (by $35 million to $98 million). PPM Energy's
contribution to the group's profit before interest and tax, excluding goodwill
amortisation and including results from joint ventures, was $99 million. In
addition, the group's tax charge was reduced by $12 million, as a result of PPM
Energy's Production Tax Credits. Gas storage margins improved by $48 million in
the year, with increased contracted storage capacity delivering $34 million of
this growth and the owned facilities at Alberta and Katy, adding $14 million.
Wind generation profit improved by $10 million, primarily due to investment in
2003/04 in new windfarms delivering substantial volume growth during the year.
Energy management activities improved by $7 million mainly as a result of
increased contributions from long-term contractual arrangements to supply
electricity and gas due to higher volumes. Net operating costs required to
support increased business activities and infrastructure were higher by $24
million and depreciation increased by $6 million.
PPM Energy now controls about 830 MW of operating wind energy with new
developments totalling 574 MW due to be constructed in 2005, making PPM Energy
the largest US developer of renewables announced to date this year. In May
2005, PPM Energy announced plans for a 150 MW windfarm in northern California to
be called the Shiloh windfarm. The Shiloh windfarm, together with the
previously announced windfarms at Maple Ridge, Klondike II, Trimont and Elk
River, will take PPM Energy's total wind portfolio to approximately 1,405 MW by
the end of 2005, well on target toward its goal of at least 2,300 MW on-line by
2010. Approximately 90% of PPM Energy's operational windfarm output is
committed under long-term contract. In December 2004, PPM Energy also acquired
the northeast US wind energy developer, Atlantic Renewable Energy Corporation
(now called PPM Atlantic Renewable). Including PPM Atlantic Renewable projects,
PPM Energy now has approximately 9,000 MW in its renewable development pipeline,
stretching from California to New York. In addition, PPM Energy has over 800 MW
of thermal generation.
In May 2005, PPM Energy announced plans to expand the Waha gas storage
development project in west Texas from 7.2 BCF to 9.5 BCF based on strong market
demand and favourable geological results. PPM Energy also announced the
acquisition of the 4.5 BCF Grama Ridge gas storage facility in New Mexico, from
ConocoPhillips, which continues PPM Energy's profitable investment in gas
storage assets. Including Grama Ridge, PPM Energy now has 80.5 BCF of gas
storage under its ownership or control. PPM Energy intends to expand the Grama
Ridge site to 6.0 BCF by the end of 2005.
FINANCIAL REVIEW - FULL YEAR
The UK businesses and PPM Energy delivered strong operating profit growth.
PacifiCorp's results were adversely affected by the weaker US dollar and the
impact of weather and plant availability. Our hedging policy has continued to
successfully mitigate the impact on group earnings of the weaker dollar, with an
earnings hedge benefit of £53 million (2003/04: £60 million) delivered at an
operating profit level and a balance sheet hedging benefit of £88 million (2003/
04: £39 million) delivered to interest from the UK/US interest rate
differential.
Group turnover increased by £1,052 million to £6,849 million for the year with
the weaker US dollar reducing sterling revenues by £225 million, net of the
movement in hedging benefits from the forward sale of dollars. PacifiCorp's
dollar turnover increased by 8%, primarily due to higher wholesale and retail
revenues and Infrastructure Division's turnover increased by 6% due to higher
regulated and new connections business revenues, both driven by higher volumes.
The UK Division's turnover grew by 33% as a result of higher retail sales,
increased energy balancing activities and the acquisition of generation plant.
PPM Energy's dollar turnover was higher by 56% due to increased sales under
long-term contracts, activities around owned and contracted storage assets and
the addition of new wind generation.
Group operating profit for the year decreased by £870 million to £153 million
due to the exceptional charge in the year of £927 million, relating to the
impairment of goodwill associated with PacifiCorp. Excluding goodwill
amortisation and the exceptional item, group operating profit was £46 million
higher at £1,197 million, after a net adverse foreign exchange effect of £58
million. This increase reflects the strong performance of our UK operations and
good growth in PPM Energy. Although below our expectations, PacifiCorp
delivered an improved second half operational performance compared to the first
six months of the year.
On 24 May 2005, the group announced that agreement had been reached to sell
PacifiCorp to MidAmerican for a total consideration of $9.4 billion, subject to
appropriate regulatory and shareholder approvals. As a consequence, the group
has undertaken a review of the goodwill allocated to the PacifiCorp reporting
segment. The estimated recoverable value has been based on net realisable
value, with reference to the price of comparable businesses, recent market
transactions and the estimated proceeds from disposal. This review has resulted
in an exceptional charge for the impairment of goodwill of £927 million, which
is disclosed separately within operating profit as an exceptional item. No
material tax costs are expected.
In addition, the group has performed a similar review under US GAAP and as a
result a goodwill impairment of £1,381 million has been recorded in the
PacifiCorp segment under US GAAP. The higher charge is principally due to the
higher carrying value of the net assets of PacifiCorp under US GAAP compared to
UK GAAP. This difference is primarily attributable to the recognition of
regulatory assets, FAS 133 and lower cumulative amortisation of goodwill under
US GAAP.
The net interest charge reduced by £50 million to £188 million for the year The
charge included a £14 million translation benefit from the weaker US dollar and
an additional £49 million benefit from the UK/US interest rate differential
arising from our dollar balance sheet hedging strategy. The net interest charge
also benefited from £14 million of net interest receipts following the
settlement of outstanding tax claims. The main items partly offsetting these
reductions in interest were higher interest payments on floating rate debt and
interest payable on capital contributions to be refunded under the new BETTA
trading regime.
The loss before tax for the year was £29 million compared to a profit before tax
of £792 million in the prior year, again due to the exceptional goodwill
impairment charge. Excluding goodwill amortisation and the exceptional item,
profit before tax improved by £95 million to £1,015 million for the year, with
the impact of PacifiCorp's results being more than offset by operating profit
improvements in our other businesses and the lower net interest charge.
In line with last year's results, the effective rate of tax, excluding goodwill
amortisation and the exceptional item, was 27%. The effective rate of tax was
lower than the standard rate, as it benefited from the release of provisions
relating to prior years following agreement of specific items with tax
authorities, the group's financing arrangements and tax credits from US wind
generation. Legislation proposed in the Finance Bill 2005, but not yet enacted,
is likely to affect the group's internal financing arrangements and could,
therefore, result in an increase in the effective rate in future years.
However, higher Production Tax Credits from US windfarms are expected partly to
offset this increase.
Earnings per share were lower by 46.23 pence resulting in a loss per share of
16.83 pence for the year. Excluding goodwill amortisation and the exceptional
item, earnings per share improved by 3.82 pence to 40.22 pence.
Cash flows from operating activities reduced compared to the prior year to March
2004 by £104 million to £1,260 million, as favourable operating performance was
partly offset by higher working capital commitments mainly due to higher debtors
reflecting significant growth in our UK Division and provision movements.
Interest, tax and dividend payments totalled £600 million, with the tax and
interest payments lower than last year due to the settlement of outstanding tax
claims and cash benefits associated with our hedging strategy. Other net
inflows which impact net debt, other than net investment in assets and
acquisitions, were £257 million, mainly as a result of cash received on the
maturing and cancellation of net investment hedging derivatives during the year.
Net capital investment cash spend including Damhead Creek was £1,270 million.
After adverse non-cash movements of £70 million, which included debt acquired
following the purchase of the remaining 50% of the Brighton power plant partly
offset by the favourable effect of foreign exchange, net debt at 31 March 2005
was £4,147 million, £423 million higher than at 31 March 2004. Gearing (net
debt/equity shareholders' funds) was 104%, compared to 79% as at 31 March 2004.
The dividend for the fourth quarter of 2004/05 will be 7.65 pence per share,
payable on 28 June 2005. This takes the total dividends for the year to 22.50
pence per share and is covered 1.79 times by earnings per share, excluding
goodwill amortisation and the exceptional item, consistent with our stated
dividend policy. The ADS dividend rate is $0.5582 and will also be paid on 28
June 2005 to shareholders of record on 3 June 2005.
FINANCIAL REVIEW - FOURTH QUARTER
Group turnover increased by £190 million to £1,938 million for the fourth
quarter after a £47 million impact of the weaker US dollar, net of the movement
in hedging benefits from the forward sale of dollars.
The group operating loss for the fourth quarter was £617 million compared to an
operating profit of £292 million in the equivalent period last year. The
reduction in operating profit was due to the exceptional charge of £927 million
relating to the impairment of goodwill associated with PacifiCorp, which is
discussed in the 'Financial Review - Full Year', above. Excluding goodwill
amortisation and the exceptional item, operating profit increased by £18 million
to £339 million, after a net adverse foreign exchange effect of £33 million.
PacifiCorp's operating profit, excluding goodwill amortisation and the
exceptional item, for the fourth quarter fell by £20 million to £137 million.
This was primarily due to a £34 million unfavourable net translation variance
arising from the weaker US dollar and reduced hedging benefits compared to the
equivalent period last year, when the majority of the full year hedge benefit
was recognised in the fourth quarter. Dollar operating profit, excluding
goodwill amortisation and the exceptional item, increased by $26 million to $248
million, mainly due to higher retail and other regulatory revenues and
efficiency initiatives.
Infrastructure Division's operating profit improved by £1 million to £103
million for the fourth quarter, with a slight reduction in regulated revenues
and an increase in rates and depreciation charges being offset by favourable net
operating cost movements.
The UK Division's strong performance continued with operating profit, excluding
goodwill amortisation, up by £26 million for the fourth quarter at £77 million.
Electricity and gas margins improved as the contribution from the Damhead Creek
and Brighton generation plants, along with the Division's balanced commodity
position, helped mitigate the impact of wholesale price volatility on the
growing customer base.
PPM Energy's operating profit, excluding goodwill amortisation, rose by £11
million to £22 million for the fourth quarter (by $18 million to $38 million),
primarily as a result of an improved contribution from contractual gas storage.
As a result of these operating profit improvements and a £10 million reduction
in the net interest charge, profit before tax, excluding goodwill amortisation
and the exceptional item, improved by £23 million to £292 million. The loss
before tax was £664 million compared to a profit before tax of £239 million in
the equivalent period last year.
Earnings per share, excluding goodwill amortisation and the exceptional item,
improved by 1.01 pence to 11.64 pence. The loss per share was 40.54 pence
compared to earnings per share of 9.02 pence for the equivalent period last
year.
INTERNATIONAL FINANCIAL REPORTING STANDARDS ('IFRS')ScottishPower is required to report its group consolidated financial results in
accordance with IFRS from 1 April 2005 and as a result has restated its
financial information for the year ended 31 March 2005. The group has utilised
the IFRS 1 'First-time Adoption of International Financial Reporting Standards',
exemption not to prepare comparative information in accordance with IAS 32 '
Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial
Instruments: Recognition and Measurement'. As these standards will be applied
with effect from 1 April 2005 they will, therefore, not impact the IFRS
financial information for the year ended 31 March 2005.
The effect of moving from UK GAAP to IFRS resulted in a 1% increase in profit
before tax, excluding the impact of goodwill amortisation and the exceptional
item. Earnings per share, excluding the impact of goodwill amortisation and the
exceptional item, reduced by 1%. Net debt increased by £159 million as a result
of the recognition of additional finance lease obligations of £71 million and
the reclassification within the balance sheet of existing finance lease
obligations of £88 million. Whilst this impacts on what is reported as net
debt, underlying cash flows are unaffected. Net assets reduced by 2%,
principally as a result of the recognition of the deficit on the group's pension
schemes.
A separate announcement detailing the impacts of IFRS and providing primary
statements will be published today. Further details are available on the
Company's website,
. The group will host an IFRS seminar
for analysts and institutional investors on Wednesday 25 May 2005.
INVESTOR TIMETABLE
Key investor dates going forward are as follows:
1 June 2005 Shares go ex-dividend for the fourth quarter
3 June 2005 Last date for registering transfers to receive the
fourth quarter dividend
28 June 2005 Fourth quarter dividend payable
22 July 2005 Annual General Meeting
10 August 2005 Announcement of results for the first quarter ending 30
June 2005
17 August 2005 Shares go ex-dividend for the first quarter
19 August 2005 Last date for registering transfers to receive the
first quarter dividend
28 September 2005 First quarter dividend payable
10 November 2005 Announcement of results for the second quarter and half
year ending 30 September 2005
US Dividend Tax Note
The 'Jobs and Growth Tax Relief Reconciliation Act of 2003' (the 'Act') reduces
the rates of US federal income tax on dividends received by individual US
shareholders from domestic corporations and 'qualified foreign corporations'.
Based on the Act's legislative history and Internal Revenue Service releases,
ScottishPower believes that it is a 'qualified foreign corporation' as defined
in the Act. As a result, in most cases our ADS holders that are individuals
should be subject to the same preferential dividend tax rates as US shareholders
owning shares in US-based companies. The Act only applies to individuals
subject to US federal net income tax and therefore the tax position of UK
shareholders is unaffected. Please note that US federal income tax treatment is
dependent upon an individual's tax circumstances. Therefore, you should consult
your own tax advisor regarding the tax matters discussed in this statement or
any other taxation issue. For further information on the Jobs and Growth Tax
Relief Reconciliation Act of 2003, investors are encouraged to go to
and to consult with their tax advisor.
Safe Harbor
Some statements contained herein may include statements regarding our
assumptions, projections, expectations or beliefs about future events. These
statements are intended as 'Forward-Looking Statements' within the meaning of
the 'safe harbor' provisions of the Private Securities Litigation Reform Act of
1995. All statements with respect to us, our corporate plans, future financial
condition, future results of operations, future business plans, strategies,
objectives and beliefs and other statements that are not historical facts are
forward looking. Statements containing the words 'may', 'will', 'expect', '
anticipate', 'believe', 'intend', 'estimate', 'continue', 'plan', 'project', '
target', 'on track to', 'strategy', 'aim', 'seek', 'will meet' or other similar
words are also forward-looking. These statements are based on our management's
assumptions and beliefs in light of the information available to us. These
assumptions involve risks and uncertainties which may cause the actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
We wish to caution readers and others to whom forward-looking statements are
addressed, that any such forward-looking statements are not guarantees of future
performance and that actual results may differ materially from estimates in the
forward-looking statements. We undertake no obligation to revise these
forward-looking statements to reflect events or circumstances after the date
hereof. Important factors that may cause results to differ from expectations
include, for example:
- the success of reorganisational and cost-saving or other
strategic efforts, including the proposed sale of PacifiCorp;
- any regulatory changes (including changes in environmental
regulations) that may increase the operating costs of the group, may require
the group to make unforeseen capital expenditures or may prevent the
regulated business of the group from achieving acceptable returns;
- the outcome of general rate cases and other proceedings
conducted by regulatory commissions;
- the cost, feasibility and eventual outcome of hydroelectric facility
relicensing proceedings;
- future levels of industry generation and supply, demand
and pricing, political stability, competition and economic growth in the
relevant areas in which the group has operations;
- the availability of acceptable fuel at favorable prices;
- weather and weather-related impacts;
- the availability of operational capacity of plants;
- adequacy and accuracy of load and price forecasts that
could impact the hedging strategy and costs to balance electricity load and
supply;
- timely and appropriate completion of the Request for
Proposals process, unanticipated construction delays, changes in costs,
receipt of required permits and authorizations, and other factors that could
affect future generation plants and infrastructure additions;
- the impact of interest rates and investment performance on pension and
post-retirement expense;
- the impact of new accounting pronouncements on results of operations; and
- development and use of technology, the actions of competitors, natural
disasters and other changes to business conditions.
Further Information:
Jennifer Lawton Head of Investor Relations 0141 636 4527
David Ross Investor Relations Manager 0141 566 4853
Colin McSeveny Group Media Relations Manager 0141 636 4515
UBS Limited and Morgan Stanley & Co. Limited are joint financial advisors and
corporate brokers to ScottishPower.
UBS Limited and Morgan Stanley & Co. Limited are acting solely for the Company
and no-one else in connection with this announcement and will not be responsible
to anyone other than the Company for providing the protections afforded to their
clients or for providing advice in relation thereto.
Group Profit and Loss Account
for the three months and year ended 31 March 2005
Three months ended Year ended
31 March 31 March
2005 2004 2005 2004
Notes £m £m £m £m
-------------------------------------------------------------------------------------------------------------------
Turnover: group and share of joint ventures and associates 1,941.9 1,759.1 6,877.4 5,828.9
Less: share of turnover in joint ventures (3.7) (10.9) (27.4) (31.0)
Less: share of turnover in associates (0.4) (0.3) (1.2) (0.8)
-------------------------------------------------------------------------------------------------------------------
Group turnover 2 1,937.8 1,747.9 6,848.8 5,797.1
Cost of sales (1,312.1) (1,121.0) (4,567.2) (3,630.6)
-------------------------------------------------------------------------------------------------------------------
Gross profit 625.7 626.9 2,281.6 2,166.5
Transmission and distribution costs (146.1) (137.4) (606.2) (544.5)
-------------------------------------------------------------------------------------------------------------------
Administrative expenses before goodwill amortisation
and exceptional item (153.8) (178.0) (511.3) (498.2)
Goodwill amortisation (28.7) (29.5) (117.5) (128.0)
Exceptional item - impairment of goodwill 3 (927.0) - (927.0) -
-------------------------------------------------------------------------------------------------------------------
Administrative expenses (1,109.5) (207.5) (1,555.8) (626.2)
Other operating income 13.0 9.5 33.0 26.8
-------------------------------------------------------------------------------------------------------------------
Operating profit before goodwill amortisation and
exceptional item 338.8 321.0 1,197.1 1,150.6
Goodwill amortisation (28.7) (29.5) (117.5) (128.0)
Exceptional item - impairment of goodwill 3 (927.0) - (927.0) -
-------------------------------------------------------------------------------------------------------------------
Operating (loss)/profit 2 (616.9) 291.5 152.6 1,022.6
Share of operating profit in joint ventures 0.1 5.0 2.2 7.3
Share of operating profit in associates 0.2 0.2 3.8 0.3
-------------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary activities before interest (616.6) 296.7 158.6 1,030.2
Net interest and similar charges
- Group (46.4) (55.6) (183.7) (232.3)
- Joint ventures (0.5) (1.8) (4.2) (5.8)
-------------------------------------------------------------------------------------------------------------------
(46.9) (57.4) (187.9) (238.1)
-------------------------------------------------------------------------------------------------------------------
Profit on ordinary activities before goodwill amortisation,
exceptional item and taxation 292.2 268.8 1,015.2 920.1
Goodwill amortisation (28.7) (29.5) (117.5) (128.0)
Exceptional item - impairment of goodwill 3 (927.0) - (927.0) -
-------------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary activities before taxation (663.5) 239.3 (29.3) 792.1
Taxation
- Group (77.9) (72.2) (272.3) (247.3)
- Joint ventures (0.2) (0.3) (0.2) (1.0)
- Associates (0.8) - (1.6) (0.1)
-------------------------------------------------------------------------------------------------------------------
4 (78.9) (72.5) (274.1) (248.4)
-------------------------------------------------------------------------------------------------------------------
(Loss)/profit after taxation (742.4) 166.8 (303.4) 543.7
Minority interests (including non-equity) (0.1) (1.8) (4.7) (5.8)
-------------------------------------------------------------------------------------------------------------------
(Loss)/profit for the period (742.5) 165.0 (308.1) 537.9
Dividends 6 (139.4) (112.9) (412.6) (375.1)
-------------------------------------------------------------------------------------------------------------------
(Loss)/profit retained (881.9) 52.1 (720.7) 162.8
-------------------------------------------------------------------------------------------------------------------
(Loss)/earnings per ordinary share 5 (40.54)p 9.02p (16.83)p 29.40p
Adjusting items - goodwill amortisation 1.57p 1.61p 6.42p 7.00p
- exceptional item - impairment of goodwill 50.61p - 50.63p -
-------------------------------------------------------------------------------------------------------------------
Earnings per ordinary share before goodwill amortisation
and exceptional item 5 11.64p 10.63p 40.22p 36.40p
-------------------------------------------------------------------------------------------------------------------
Diluted (loss)/earnings per ordinary share 5 (38.33)p 8.72p (15.41)p 28.83p
Adjusting items - goodwill amortisation 1.49p 1.53p 6.10p 6.77p
- exceptional item - impairment of goodwill 48.03p - 48.08p -
-------------------------------------------------------------------------------------------------------------------
Diluted earnings per ordinary share before goodwill amortisation
and exceptional item 5 11.19p 10.25p 38.77p 35.60p
-------------------------------------------------------------------------------------------------------------------
Dividends per ordinary share 6 7.65p 6.25p 22.50p 20.50p
-------------------------------------------------------------------------------------------------------------------
The above results relate to continuing operations.
Statement of Total Recognised Gains and Losses
for the year ended 31 March 2005
Year ended
31 March
2005 2004
£m £m
-------------------------------------------------------------------------------------------------------------------
(Loss)/profit for the financial year (308.1) 537.9
Exchange movement on translation of overseas results and net assets (100.2) (537.6)
Translation differences on foreign currency hedging 146.6 475.2
Tax on translation differences on foreign currency hedging (46.4) 46.1
Revaluation reserve arising on the purchase of the remaining 50% of the Brighton Power Station 5.8 -
-------------------------------------------------------------------------------------------------------------------
Total recognised gains and losses for the financial year (302.3) 521.6
-------------------------------------------------------------------------------------------------------------------
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 March 2005
Year ended
31 March
2005 2004
£m £m
-----------------------------------------------------------------------------------------------------------------
(Loss)/profit for the financial year (308.1) 537.9
Dividends (412.6) (375.1)
-----------------------------------------------------------------------------------------------------------------
(Loss)/profit retained (720.7) 162.8
Exchange movement on translation of overseas results and net assets (100.2) (537.6)
Translation differences on foreign currency hedging 146.6 475.2
Tax on translation differences on foreign currency hedging (46.4) 46.1
Revaluation reserve arising on the purchase of the remaining 50% of the Brighton Power Station 5.8 -
Share capital issued 21.9 13.1
Consideration paid in respect of purchase of own shares held under trust (30.7) (28.9)
Credit in respect of employee share awards 7.2 4.9
Consideration received in respect of sale of own shares held under trust 7.6 0.4
-----------------------------------------------------------------------------------------------------------------
Net movement in shareholders' funds (708.9) 136.0
Opening shareholders' funds 4,690.9 4,554.9
-----------------------------------------------------------------------------------------------------------------
Closing shareholders' funds 3,982.0 4,690.9
-----------------------------------------------------------------------------------------------------------------
Group Cash Flow Statement
for the year ended 31 March 2005
Year ended
31 March
2005 2004
Notes £m £m
---------------------------------------------------------------------------------------
Cash inflow from operating activities 7 1,259.7 1,364.0
Dividends received from joint ventures and
associates 2.0 0.5
Returns on investments and servicing of finance (116.4) (210.0)
Taxation (99.2) (121.8)
---------------------------------------------------------------------------------------
Free cash flow 1,046.1 1,032.7
Capital expenditure and financial investment (888.0) (831.2)
---------------------------------------------------------------------------------------
Cash flow before acquisitions and disposals 158.1 201.5
Acquisitions and disposals (351.1) (31.3)
Equity dividends paid (386.1) (394.4)
---------------------------------------------------------------------------------------
Cash outflow before use of liquid resources and financing (579.1) (224.2)
Management of liquid resources 8 (185.9) (354.1)
Financing
- Issue of ordinary share capital 21.9 13.1
- Redemption of preferred stock of PacifiCorp (4.1) (4.6)
- Maturity of net investment hedging derivatives 140.0 -
- Cancellation of cross-currency swaps 92.0 76.1
- Repricing of cross-currency swaps - 403.0
- Net purchase of own shares held under trust (23.1) (28.5)
- Increase in debt 8 753.3 464.3
---------------------------------------------------------------------------------------
980.0 923.4
---------------------------------------------------------------------------------------
Increase in cash in year 8 215.0 345.1
---------------------------------------------------------------------------------------
Free cash flow represents cash flow from operating activities after adjusting
for dividends received from joint ventures and associates, returns on
investments and servicing of finance and taxation.
Reconciliation of Net Cash Flow to Movement in Net Debt
for the year ended 31 March 2005
Year ended
31 March
2005 2004
Note £m £m
------------------------------------------------------------------------------
Increase in cash in year 215.0 345.1
Cash inflow from increase in debt (753.3) (464.3)
Cash outflow from movement in liquid resources 185.9 354.1
------------------------------------------------------------------------------
Change in net debt resulting from cash flows (352.4) 234.9
Net debt acquired (116.1) -
Foreign exchange movement 62.4 388.3
Other non-cash movements (16.4) (26.7)
------------------------------------------------------------------------------
Movement in net debt in year (422.5) 596.5
Net debt at end of previous year (3,724.5) (4,321.0)
------------------------------------------------------------------------------
Net debt at end of year 8 (4,147.0) (3,724.5)
------------------------------------------------------------------------------
Group Balance Sheet
as at 31 March 2005
2005 2004
Notes £m £m
------------------------------------------------------------------------------
Fixed assets
Intangible assets 845.4 1,855.9
Tangible assets 9,602.8 8,756.6
Investments
- Investments in joint ventures:
Share of gross assets 85.0 180.8
Share of gross liabilities (46.5) (157.3)
------------------------------------------------------------------------------
38.5 23.5
- Loans to joint ventures 10.6 38.8
------------------------------------------------------------------------------
49.1 62.3
- Investments in associates 4.0 2.7
- Other investments 120.3 129.8
------------------------------------------------------------------------------
173.4 194.8
------------------------------------------------------------------------------
10,621.6 10,807.3
------------------------------------------------------------------------------
Current assets
Stocks 185.4 185.5
Debtors
- Gross debtors 1,856.6 1,576.2
- Less non-recourse financing (65.3) (109.5)
------------------------------------------------------------------------------
1,791.3 1,466.7
Short-term bank and other deposits 1,747.8 1,347.3
------------------------------------------------------------------------------
3,724.5 2,999.5
------------------------------------------------------------------------------
Creditors: amounts falling due within one year
Loans and other borrowings (553.4) (410.7)
Other creditors (2,110.5) (1,658.7)
------------------------------------------------------------------------------
(2,663.9) (2,069.4)
------------------------------------------------------------------------------
Net current assets 1,060.6 930.1
------------------------------------------------------------------------------
Total assets less current liabilities 11,682.2 11,737.4
Creditors: amounts falling due after more than one year
Loans and other borrowings (including convertible bonds) (5,341.4) (4,661.1)
Provisions for liabilities and charges
- Deferred tax (1,333.5) (1,242.2)
- Other provisions (399.5) (504.5)
------------------------------------------------------------------------------
(1,733.0) (1,746.7)
Deferred income (570.1) (577.8)
------------------------------------------------------------------------------
Net assets 2 4,037.7 4,751.8
------------------------------------------------------------------------------
Called up share capital 932.7 929.8
Share premium 2,294.7 2,275.7
Revaluation reserve 45.5 41.6
Capital redemption reserve 18.3 18.3
Merger reserve 406.4 406.4
Profit and loss account 284.4 1,019.1
------------------------------------------------------------------------------
Equity shareholders' funds 3,982.0 4,690.9
Minority interests (including non-equity) 55.7 60.9
------------------------------------------------------------------------------
Capital employed 4,037.7 4,751.8
------------------------------------------------------------------------------
Net asset value per ordinary share 5 217.3p 256.2p
------------------------------------------------------------------------------
Notes to the Preliminary Statement and quarterly Accounts
for the year ended 31 March 2005
1 Basis of preparation
(a) The financial information included within this Preliminary Statement and
quarterly Accounts has been prepared on the basis of accounting policies
consistent with those set out in the Accounts for the year ended 31 March
2004.
(b) The information shown for the years ended 31 March 2005 and 31 March 2004
does not constitute statutory Accounts within the meaning of Section 240 of the
Companies Act 1985 and has been extracted from the full Accounts for the years
ended 31 March 2005 and 31 March 2004 respectively. The reports of the auditors
on those Accounts were unqualified and did not contain a Statement under either
Section 237(2) or Section 237(3) of the Companies Act 1985. The Accounts for the
year ended 31 March 2004 have been filed with the Registrar of Companies. The
Accounts for the year ended 31 March 2005 will be delivered to the Registrar of
Companies in due course. The information shown in respect of the three months
ended 31 March 2005 and 31 March 2004 is unaudited.
(c) The relevant exchange rates applied in the preparation of the Preliminary
Statement and quarterly Accounts are detailed in Note 12.
(d) The financial information on pages x to x was approved by the Board on 24
May 2005.
2 Segmental information
(a) Turnover by segment Three months ended 31 March
Total turnover Inter-segment turnover External turnover
2005 2004 2005 2004 2005 2004
Notes £m £m £m £m £m £m
---------------------------------------------------------------------------------------------------------------------
United Kingdom
UK Division - Integrated Generation
and Supply (i) 1,156.8 976.2 (0.2) (7.0) 1,156.6 969.2
Infrastructure Division - Power Systems 193.7 202.7 (92.4) (95.7) 101.3 107.0
---------------------------------------------------------------------------------------------------------------------
United Kingdom total 1,257.9 1,076.2
---------------------------------------------------------------------------------------------------------------------
United States
PacifiCorp 558.3 552.7 (0.5) (0.9) 557.8 551.8
PPM 124.4 122.2 (2.3) (2.3) 122.1 119.9
---------------------------------------------------------------------------------------------------------------------
United States total 679.9 671.7
---------------------------------------------------------------------------------------------------------------------
Total (ii) 1,937.8 1,747.9
---------------------------------------------------------------------------------------------------------------------
Year ended 31 March
Total turnover Inter-segment turnover External turnover
2005 2004 2005 2004 2005 2004
Notes £m £m £m £m £m £m
----------------------------------------------------------------------------------------------------------------------
United Kingdom
UK Division - Integrated Generation
and Supply (i) 3,711.0 2,804.0 (25.9) (26.6) 3,685.1 2,777.4
Infrastructure Division - Power Systems 728.1 704.1 (348.0) (345.8) 380.1 358.3
----------------------------------------------------------------------------------------------------------------------
United Kingdom total 4,065.2 3,135.7
----------------------------------------------------------------------------------------------------------------------
United States
PacifiCorp 2,284.3 2,321.1 (2.8) (2.5) 2,281.5 2,318.6
PPM 511.5 352.9 (9.4) (10.1) 502.1 342.8
----------------------------------------------------------------------------------------------------------------------
United States total 2,783.6 2,661.4
----------------------------------------------------------------------------------------------------------------------
Total (ii) 6,848.8 5,797.1
----------------------------------------------------------------------------------------------------------------------
(b) Operating (loss)/profit by segment
Three months ended 31 March
Before Exceptional
goodwill item -
amorti impair
-sation -ment Before
and Goodwill of goodwill Goodwill
exceptional amorti Goodwill amorti amorti
item -sation (Note 3) -sation -sation
2005 2005 2005 2005 2004 2004 2004
Note £m £m £m £m £m £m £m
---------------------------------------------------------------------------------------------------------------------
United Kingdom
UK Division - Integrated
Generation
and Supply (i) 76.6 (1.3) - 75.3 50.4 (1.3) 49.1
Infrastructure Division -
Power Systems 103.2 - - 103.2 102.4 - 102.4
---------------------------------------------------------------------------------------------------------------------
United Kingdom total 179.8 (1.3) - 178.5 152.8 (1.3) 151.5
---------------------------------------------------------------------------------------------------------------------
United States
PacifiCorp 137.1 (27.3) (927.0) (817.2) 157.1 (28.1) 129.0
PPM 21.9 (0.1) - 21.8 11.1 (0.1) 11.0
---------------------------------------------------------------------------------------------------------------------
United States total 159.0 (27.4) (927.0) (795.4) 168.2 (28.2) 140.0
---------------------------------------------------------------------------------------------------------------------
Total 338.8 (28.7) (927.0) (616.9) 321.0 (29.5) 291.5
---------------------------------------------------------------------------------------------------------------------
Year ended 31 March
Before Exceptional
goodwill item -
amorti impair
-sation -ment Before
and Goodwill of goodwill Goodwill
exceptional amorti Goodwill amorti amorti
item -sation (Note 3) -sation -sation
2005 2005 2005 2005 2004 2004 2004
Note £m £m £m £m £m £m £m
---------------------------------------------------------------------------------------------------------------------
United Kingdom
UK Division - Integrated
Generation
and Supply (i) 180.5 (4.9) - 175.6 101.0 (4.9) 96.1
Infrastructure Division
- Power Systems 416.3 - - 416.3 393.6 - 393.6
---------------------------------------------------------------------------------------------------------------------
United Kingdom total 596.8 (4.9) - 591.9 494.6 (4.9) 489.7
---------------------------------------------------------------------------------------------------------------------
United States
PacifiCorp 541.7 (112.1) (927.0) (497.4) 619.3 (122.5) 496.8
PPM 58.6 (0.5) - 58.1 36.7 (0.6) 36.1
---------------------------------------------------------------------------------------------------------------------
United States total 600.3 (112.6) (927.0) (439.3) 656.0 (123.1) 532.9
---------------------------------------------------------------------------------------------------------------------
Total 1,197.1 (117.5) (927.0) 152.6 1,150.6 (128.0) 1,022.6
---------------------------------------------------------------------------------------------------------------------
(i) UK Division - Integrated Generation and Supply completed the acquisition of
the Damhead Creek CCGT power plant and associated contracts on 1 June 2004 and
completed the purchase of the remaining 50% of the Brighton Power Station CCGT
power plant and associated contracts on 28 September 2004. The post acquisition
results of the acquired businesses amounted to turnover of £52.0 million and
£162.2 million and operating profit of £30.1 million and £53.6 million for the
three months and year to March 2005, respectively.
(ii) In the segmental analysis turnover is shown by geographical origin.
Turnover analysed by geographical destination is not materially different.
(c) Net assets by segment
31 March 31 March
2005 2004
Note £m £m
------------------------------------------------------------------------------
United Kingdom
UK Division - Integrated Generation and Supply 1,734.3 1,022.5
Infrastructure Division - Power Systems 2,479.8 2,337.4
------------------------------------------------------------------------------
United Kingdom total 4,214.1 3,359.9
------------------------------------------------------------------------------
United States
PacifiCorp 5,071.3 5,935.8
PPM 469.3 439.0
------------------------------------------------------------------------------
United States total 5,540.6 6,374.8
------------------------------------------------------------------------------
Total 9,754.7 9,734.7
------------------------------------------------------------------------------
Unallocated net liabilities (i) (5,717.0) (4,982.9)
------------------------------------------------------------------------------
Total 4,037.7 4,751.8
------------------------------------------------------------------------------
(i) Unallocated net liabilities include net debt, dividends payable, tax
liabilities and investments.
3 Exceptional item
In November 2004, the Board began a strategic review of PacifiCorp as a result
of its performance and the significant investment it required in the immediate
future. In May 2005, the Board concluded that in light of the prospects for
PacifiCorp, the scale and timing of the capital investment required and the
likely profile of returns, shareholders' interests were best served by a sale of
PacifiCorp and the return of capital to shareholders. As a consequence, the
group has undertaken a review of the carrying value of the goodwill allocated to
the PacifiCorp reporting segment as at 31 March 2005. The estimated recoverable
value has been based on net realisable value, with reference to the price of
comparable businesses, recent market transactions and the estimated proceeds
from disposal. This has resulted in an exceptional charge, in the three months
and the year ended 31 March 2005 for the impairment of goodwill of £927 million
which is disclosed separately within operating (loss)/profit as an exceptional
item.
4 Taxation
The charge for taxation, including deferred tax, for the year ended 31 March
2005 reflects the anticipated effective rate for the year ended 31 March 2005 of
27% (year ended 31 March 2004 27%) on the profit before goodwill amortisation,
exceptional item and taxation as detailed below:
Three months ended Year ended
31 March 31 March
2005 2004 2005 2004
£m £m £m £m
------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary activities before taxation (663.5) 239.3 (29.3) 792.1
Adjusting items - goodwill amortisation 28.7 29.5 117.5 128.0
- exceptional item
- impairment of goodwill 927.0 - 927.0 -
------------------------------------------------------------------------------------------------
Profit on ordinary activities before goodwill amortisation,
exceptional item and taxation 292.2 268.8 1,015.2 920.1
------------------------------------------------------------------------------------------------
5 (Loss)/earnings and net asset value per ordinary share
(a) (Loss)/earnings per ordinary share have been calculated for all periods by
dividing the (loss)/profit for the period by the weighted average number of
ordinary shares in issue during the period, based on the following information:
Three months ended Year ended
31 March 31 March
2005 2004 2005 2004
-------------------------------------------------------------------------------------------------------------------
Basic (loss)/earnings per share
(Loss)/profit for the period (£ million) (742.5) 165.0 (308.1) 537.9
Weighted average share capital (number of shares, million) 1,831.7 1,829.9 1,830.8 1,829.5
-------------------------------------------------------------------------------------------------------------------
Diluted (loss)/earnings per share
(Loss)/profit for the period (£ million) (739.8) 167.9 (297.1) 545.0
Weighted average share capital (number of shares, million) 1,929.9 1,925.9 1,928.0 1,890.2
-------------------------------------------------------------------------------------------------------------------
The difference between the basic and the diluted weighted average share capital
is wholly attributable to outstanding share options and shares held in trust
for the group's employee share schemes and the convertible bonds.
(b) The calculation of (loss)/earnings per ordinary share, on a basis which
excludes goodwill amortisation and exceptional item, is based on the following
adjusted earnings:
Three months ended Year ended
31 March 31 March
2005 2004 2005 2004
£m £m £m £m
------------------------------------------------------------------------------
(Loss)/profit for the period (742.5) 165.0 (308.1) 537.9
Adjusting items - goodwill amortisation 28.7 29.5 117.5 128.0
- exceptional item
impairment of goodwill 927.0 - 927.0 -
------------------------------------------------------------------------------
Adjusted earnings 213.2 194.5 736.4 665.9
------------------------------------------------------------------------------
ScottishPower assesses the performance of the group by adjusting (loss)/
earnings per share, calculated in accordance with FRS 14, to exclude items it
considers to be non-recurring or non-operational in nature and believes that the
exclusion of such items provides a better comparison of business performance.
Consequently, an adjusted earnings per share figure is presented for all
periods.
(c) Net asset value per ordinary share has been calculated based on net assets
(after adjusting for minority interests) and the number of shares in issue
(after adjusting for the effect of shares held in trust) at the end of the
respective financial years.
31 March 31 March
2005 2004
-----------------------------------------------------------------------------------------------------------------
Net assets (as adjusted) (£ million) 3,982.0 4,690.9
Number of ordinary shares in issue at the year end (as adjusted)(number of shares, million) 1,832.3 1,830.6
-----------------------------------------------------------------------------------------------------------------
6 Dividends
2005 2004
pence per pence per
ordinary ordinary 2005 2004
share share £m £m
------------------------------------------------------------------------------
First interim dividend paid 4.95 4.75 91.1 87.5
Second interim dividend paid 4.95 4.75 91.0 87.4
Third interim dividend paid 4.95 4.75 91.1 87.3
Final dividend 7.65 6.25 139.4 112.9
------------------------------------------------------------------------------
Total dividends 22.50 20.50 412.6 375.1
------------------------------------------------------------------------------
7 Reconciliation of operating profit to net cash inflow from operating activities
2005 2004
£m £m
-------------------------------------------------------------------------------
Operating profit 152.6 1,022.6
Depreciation, amortisation and impairment 1,527.1 566.7
Profit on sale of tangible fixed assets (0.7) (0.4)
Amortisation of share scheme costs 7.2 4.9
Release of deferred income (19.2) (19.5)
Movements in provisions for liabilities and charges (202.1) (87.6)
Increase in stocks (1.9) (51.0)
Increase in debtors (394.6) (38.7)
Increase/(decrease) in creditors 191.3 (33.0)
-------------------------------------------------------------------------------
Net cash inflow from operating activities 1,259.7 1,364.0
-------------------------------------------------------------------------------
8 Analysis of net debt
Acquisitions
At (excluding Other At
1 April cash & non-cash 31 March
2004 Cash flow overdrafts) Exchange changes 2005
£m £m £m £m £m £m
------------------------------------------------------------------------------------------------------
Cash at bank 758.9 216.4 - (1.8) - 973.5
Overdrafts (20.1) (1.4) - 1.0 - (20.5)
------------------------------------------------------------------------------------------------------
215.0
Debt due after 1 year (4,646.1) (830.5) (116.1) 54.3 211.0 (5,327.4)
Debt due within 1 year (390.6) 76.7 - 8.4 (227.4) (532.9)
Finance leases (15.0) 0.5 - 0.5 - (14.0)
------------------------------------------------------------------------------------------------------
(753.3)
Other deposits 588.4 185.9 - - - 774.3
------------------------------------------------------------------------------------------------------
Total (3,724.5) (352.4) (116.1) 62.4 (16.4) (4,147.0)
------------------------------------------------------------------------------------------------------
'Other non-cash changes' to net debt represents the movement in debt of £227.9
million due after one year to due within one year, amortisation of finance costs
of £7.1 million and finance costs of £9.3 million representing the effects of
the RPI on bonds carrying an RPI coupon.
9 Summary of differences between UK and US Generally Accepted Accounting
Principles ('GAAP')The consolidated Accounts of the group are prepared in accordance with UK GAAP
which differs in certain significant respects from US GAAP. The effect of the US
GAAP adjustments to (loss)/profit for the financial year and equity shareholders'
funds are set out in the tables below.
Year ended
31 March
2005 2004
(a) Reconciliation of (loss)/profit for the financial year to US GAAP: £m £m
--------------------------------------------------------------------------------------
(Loss)/profit for the financial year under UK GAAP (308.1) 537.9
US GAAP adjustments:
Amortisation of goodwill 117.5 128.0
Impairment of goodwill (454.0) -
US regulatory net assets (41.8) (81.2)
Pensions 10.7 (0.1)
Depreciation on revaluation uplift 1.9 1.9
Decommissioning, environmental and mine reclamation (45.1) (13.0)
PacifiCorp Transition Plan costs (8.3) (29.0)
FAS 133 326.5 153.3
Other (30.6) (10.3)
--------------------------------------------------------------------------------------
(431.3) 687.5
Deferred tax effect of US GAAP adjustments (63.4) 54.7
--------------------------------------------------------------------------------------
(Loss)/profit for the financial year under US GAAP before cumulative
adjustment for FAS 143 (494.7) 742.2
Cumulative adjustment for FAS 143 - (0.6)
--------------------------------------------------------------------------------------
(Loss)/profit for the financial year under US GAAP (494.7) 741.6
--------------------------------------------------------------------------------------
(Loss)/earnings per share under US GAAP (27.02)p 40.54p
--------------------------------------------------------------------------------------
Diluted (loss)/earnings per share under US GAAP (27.02)p 39.19p
--------------------------------------------------------------------------------------
The adjustment described as 'FAS 133' comprises FAS 133 and subsequent revising
standards, FAS 138 and FAS 149, together with guidance issued by the Derivatives
Implementation Group ('DIG').The cumulative adjustment to the profit under US GAAP for the year ended 31
March 2004 of £(0.6) million (net of tax) represented the cumulative effect on
US GAAP earnings of adopting FAS 143 'Accounting for Asset Retirement
Obligations' effective from 1 April 2003.
In light of the conclusions of the strategic review detailed in Note 3, the
group determined that a trigger event had occurred under FAS 144 'Accounting for
the impairment or disposal of long lived assets' and FAS 142 'Goodwill and other
intangible assets' and accordingly, a review of the carrying value of the long
lived assets and goodwill allocated to the PacifiCorp reporting unit under US
GAAP has been performed. A two-step impairment test is required under both FAS
144 and FAS 142. Under FAS 144 undiscounted cash flows for the long-lived assets
of PacifiCorp exceeded their carrying value and accordingly no impairment was
triggered. Under FAS 142 the carrying value of the net assets of PacifiCorp
(including goodwill) under US GAAP was determined to be in excess of its fair
value, and accordingly the group has carried out an analysis to determine the
implied value of goodwill. Fair value was determined under US GAAP primarily
using discounted cash flows and with reference to the price of comparable
businesses, recent market transactions and estimated proceeds from disposal. As
a result, a goodwill impairment charge of £1,381 million has been recorded in
the PacifiCorp segment under US GAAP reflecting the amount by which the carrying
value of the goodwill exceeded its implied fair value. The impairment charge
under US GAAP is £454 million higher than the charge under UK GAAP principally
due to the higher carrying value of the net assets of PacifiCorp under US GAAP
compared to UK GAAP. This is as a result of the recognition under US GAAP of
regulatory assets, the impact of FAS 133 and lower cumulative amortisation of
goodwill under US GAAP.
31 March 31 March
(b) Effect on equity shareholders' funds of differences between UK GAAP 2005 2004
and US GAAP: £m £m
------------------------------------------------------------------------------------------------
Equity shareholders' funds under UK GAAP 3,982.0 4,690.9
US GAAP adjustments:
Goodwill 572.3 572.3
Business combinations (191.0) (196.1)
Amortisation of goodwill 258.7 150.0
Impairment of goodwill (454.0) -
US regulatory net assets 545.8 724.7
Pensions (58.8) (18.9)
Dividends 139.4 112.9
Revaluation (59.8) (54.0)
Depreciation on revaluation uplift 14.3 12.4
Decommissioning, environmental and mine reclamation (60.2) (14.9)
PacifiCorp Transition Plan costs 13.5 22.2
FAS 133 403.7 2.2
Other (11.2) (12.9)
Deferred tax:
Effect of US GAAP adjustments (300.5) (275.0)
Effect of differences in methodology - 14.5
------------------------------------------------------------------------------------------------
Equity shareholders' funds under US GAAP 4,794.2 5,730.3
------------------------------------------------------------------------------------------------
The FAS 133 adjustment represents the difference between accounting for
derivatives under UK and US GAAP. FAS 133 requires all derivatives, as defined
by the standard, to be marked to market value, except those which qualify for
specific exemption under the standard or associated DIG guidance, for example
those defined as normal purchases and normal sales. The derivatives which are
marked to market value in accordance with FAS 133 include only certain of the
group's commercial contractual arrangements as many of these arrangements are
outside the scope of FAS 133. In addition, the effect of these changes in the
fair value of certain long-term contracts entered into to hedge PacifiCorp's
future retail energy resource requirements, which are being marked to market
value in accordance with FAS 133, are subject to regulation in the US and are
therefore deferred as regulatory assets or liabilities pursuant to FAS 71
'Accounting for the Effects of Certain Types of Regulation'. The FAS 133
adjustment included within equity shareholders' funds at 31 March 2005 of £403.7
million includes a net liability of £89.9 million which is subject to regulation
and is therefore offset by a US regulatory asset of £89.9 million included
within 'US regulatory net assets' above.
10 Acquisitions
On 1 June 2004, ScottishPower completed the acquisition of the 800 MW Damhead
Creek CCGT power plant and associated contracts, including the benefit of a
long-term gas supply agreement, from its creditor banks for a cash consideration
of £313 million excluding expenses. On 28 September 2004, ScottishPower
completed the purchase of the remaining 50% of the 400 MW Brighton Power Station
CCGT power plant and associated contracts, including the benefit of a long-term
gas supply agreement, for a cash consideration of £26 million excluding
expenses. Fair values have been attributed to the assets and liabilities
acquired in respect of both acquisitions. No goodwill is required to be
recognised in respect of these acquisitions.
11 Subsequent events
On 24 May 2005, the group announced that agreement had been reached to sell
PacifiCorp to MidAmerican for a total consideration of $9.4 billion resulting in
net proceeds of $5.0 billion after allowing for net debt and estimated costs.
The price is payable on completion of the sale, which is subject to regulatory
and shareholder approval, and is anticipated to take 12 to 18 months. It is not
anticipated that there will be any material tax consequences arising from the
disposal. It is proposed to return approximately $4.5 billion of the net
proceeds to shareholders following completion of the sale.
12 Exchange rates
The exchange rates applied in the preparation of the Preliminary Statement and
quarterly Accounts were as follows:
Year ended
31 March
2005 2004
------------------------------------------------------
Average rate for quarters ended
30 June $1.81/£ $1.62/£
30 September $1.82/£ $1.61/£
31 December $1.87/£ $1.71/£
31 March $1.89/£ $1.84/£
------------------------------------------------------
Closing rate as at 31 March $1.89/£ $1.84/£
------------------------------------------------------