GLASGOW, UK, Aug. 12, 2004 (PRIMEZONE) -- Scottish Power plc (NYSE:SPI) (LSE:SPI) announces 1st Quarter Results:
SCOTTISH POWER plc
2004/05 1st QUARTER RESULTS to 30 June 2004
Highlights
- Financial performance
- Profits from our UK businesses increased substantially
- Improving performance by PacifiCorp begins to offset slow start
- Earnings per share* of 7.9 pence, down 2%
- Dividend per share of 4.95 pence for the quarter, up 4%
- Outlook for the year unchanged
- Improving operational performance
- UK customer numbers up 250,000 to 4.5 million
- PacifiCorp named best for US commercial and industrial
customer satisfaction
- Further group cost savings of GBP8 million
- Investing for growth
- GBP320 million purchase of 800 MW Damhead Creek CCGT plant
- Further GBP80 million invested for growth
Full Year Quarter 1
2003/04 GBP million 2004/05 2003/04
5,797 Turnover 1,481 1,245
1,023 Operating profit 220 233
1,151 Operating profit excluding goodwill 250 266
792 Profit before tax 170 171
920 Profit before tax excluding goodwill 200 204
29.4 Earnings per share (pence) 6.3 6.3
36.4 Earnings per share excluding
goodwill (pence) 7.9 8.1
20.50 Dividends per share (pence) 4.95 4.75
Note: Items marked * are excluding goodwill amortisation. ScottishPower assesses the performance of its businesses by adjusting UK GAAP statutory results to exclude items it considers to be non-recurring or non-operational. In the periods reviewed, goodwill amortisation has been excluded. We have, therefore, focused our presentation of business performance on the results excluding goodwill amortisation.
Ian Russell, ScottishPower Chief Executive, said:
"This year has started well albeit less strongly than the first quarter of last year. In the UK we gained 250,000 more customers to lift our total to 4.5 million and bought the modern Damhead Creek gas plant at an attractive price to help meet growth in demand. After a slow start, PacifiCorp's performance improved later in the quarter. We have continued to invest for future growth and have invested a total GBP522 million of this year's planned GBP1.5 billion spend to deliver a range of attractive returns. Recent trading for the group has been in line with our expectations and our outlook for the year remains unchanged."
CHIEF EXECUTIVE'S REVIEW
I believe this quarter's performance had several strong aspects, although our earnings per share* for the quarter were 2% lower than last year. In the UK Division, profit increased substantially reflecting improved margins and customer growth. We won a further 250,000 customers in the quarter (750,000 in the last 12 months), taking our customer base to 4.5 million. We acquired the 800 MW Damhead Creek CCGT power station for GBP320 million, which supports our growth in customer numbers.
Profits in PacifiCorp were, as anticipated, lower in the period. Last year we enjoyed a very strong first quarter due to unusually hot weather and good plant availability. This year we had milder weather than usual in April and May and reduced plant availability. However, performance improved as the quarter progressed and PacifiCorp remains committed to achieving $1billion EBIT in 2004/ 05.
The Distribution Price Control Review is progressing on schedule, Ofgem having published its statement at the end of June. We continue to argue strongly for higher allowed rates of return and capital expenditure allowances sufficient to meet customer quality of supply expectations and the long-term need for network reliability.
We continued to make good progress with the growth of our gas storage business in the US and UK. Development work is underway on the Waha project in Texas and we received Government approval for the Byley development in England.
Investing For Growth
Our net capital investment for the quarter was GBP522 million, of which GBP122 million (23%) was invested refurbishing our existing asset base and GBP400 million (77%) was invested in growth projects including the GBP320 million acquisition of the 800 MW Damhead Creek CCGT power plant in Kent.
In PacifiCorp, net investment in assets was GBP109 million, with GBP47 million (43%) invested for organic growth. Of this, GBP23 million was spent on new generation, primarily on our 525 MW Currant Creek plant in Utah, with construction on target for commercial operations to commence in summer 2005. We also invested GBP24 million in new connections and network reinforcement, including our ongoing major network expansion project along the Wasatch Front in Utah, which now totals 1,046 MVA of capacity to date.
In our Infrastructure Division, net investment in assets was GBP57 million, with GBP18 million (32%) of this invested for organic growth. Included in this investment were new windfarm and customer connections, and initiatives which form part of the proposals outlined in the Renewable Energy Transmission Study ("RETS") project. We announced in June 2004, that we aim to invest GBP400 million to upgrade or construct high-voltage transmission lines in Scotland to meet the Scottish Executive's 2010 renewable energy target.
In our UK Division, net investment in assets was GBP353 million, of which GBP334 million (95%) was invested for growth. This included the GBP320 million acquisition of the 800 MW Damhead Creek CCGT power plant. This modern and efficient natural gas plant with high thermal efficiency, favourable transmission location and station life is already contributing to profit. With an expected internal rate of return substantially above our target hurdle rates, Damhead Creek is expected to provide an excellent return on invested capital. Other organic growth projects included the Black Law windfarm and the Byley gas store.
PPM's net investment in assets was GBP3 million for the quarter, including expenditure on the Klamath Falls peaking generation plant and Waha gas storage expansion. PPM's wind activities continue to focus on building a pipeline of projects, totalling 8,000 MW, to develop once the federal production tax credit is renewed.
Including the investment in Damhead Creek, we currently forecast investing approximately GBP1.5 billion in the year to March 2005, in generation, networks and gas storage, all of which will deliver a range of attractive returns, some 60% of which is expected to be invested for growth.
OPERATIONAL PERFORMANCE
PacifiCorp
PacifiCorp's operating profit, excluding goodwill amortisation, was GBP117 million for the quarter compared to GBP169 million ($198 million compared to $258 million), down GBP33 million against the same period last year before the adverse effect of the weaker US dollar of GBP19 million. This year's first quarter started less strongly than our expectations, as reported in the preliminary results in May, arising from a combination of milder weather impacting on residential demand, lower hydro resource and lower thermal plant availability. In contrast, last year's first quarter benefited from higher than expected retail revenues due to favourable weather conditions and improved thermal plant generation. With a return to more normal weather conditions and thermal generation plant operating at higher levels, business performance improved in the second half of the quarter. Rate recoveries, other revenue increases and cost efficiency savings offset higher net costs arising mainly from employee related and maintenance expenditure. PacifiCorp remains committed to achieving $1 billion EBIT (earnings before interest and tax, excluding goodwill amortisation) in 2004 /05.
In July, PacifiCorp was named best for overall customer satisfaction in a nation-wide survey of commercial and industrial electricity customers by TQS Research, an improvement from third-place last year.
Of the annualised rate increases awarded last year, more than $92 million is contributing to the current financial year. This will help offset the $44 million reduction in deferred power cost recoveries, which are expected to be approximately $47 million and $13 million per year for this year and next year respectively. In June, the Idaho Public Utilities Commission approved a rate settlement worth approximately $4 million. In July, a request was filed with the Wyoming Public Service Commission to pass on approximately $12 million of increased costs associated with net power purchases.
On 4 August, PacifiCorp filed a general rate case request with the Utah Public Service Commission for approximately $111 million related to operating cost increases and recovery of investments that support Utah's growing demand and the need for enhanced network reliability. The filing, which includes a request for a future test year, represents a 9.6% increase in rates and a requested return on equity of 11.125%. The case is expected to be resolved by April 2005.
Infrastructure Division
Infrastructure Division increased operating profit by GBP11 million to GBP101 million primarily through increased regulated revenues, a favourable change in the mix of capital and revenue activities and lower net costs in the quarter. Property gains were GBP6 million lower than the first quarter of last year, however a rebate of GBP6 million was received in the quarter from the National Grid Company, resulting from a change in their charging methodology.
The Distribution Price Control Review is progressing on schedule, Ofgem having published its statement at the end of June. A further update is expected in September and final proposals in November. We continue to press Ofgem for higher allowed rates of return and capital expenditure allowances sufficient to meet customer quality of supply expectations and the long-term need for network reliability.
UK Division
Our customer success story continued. Having gained 750,000 customers in the last 12 months, of which 250,000 were won in the first three months of this year, the total number of UK customers at the end of June 2004 was 4.5 million. Operating profit, excluding goodwill amortisation, increased substantially to GBP24 million, an improvement of GBP22 million. Electricity and gas margins improved due to continued customer growth, higher prices and the first contribution from Damhead Creek. These gains were partly offset by higher net costs to support customer growth and our energy efficiency commitments.
In respect of our Longannet and Cockenzie power plants, we have decided to opt out of the Large Combustion Plant Directive ("LCPD"), effective from January 2008, and not invest in flue gas de-sulphurisation equipment as we do not currently believe this would provide a good return for shareholders. Our coal plant will continue to play a significant role within our generation portfolio for many years to come. The LCPD provides opted-out plant with 20,000 running hours of operations from 2008. We will therefore continue to invest in these assets to improve their flexibility and performance.
PPM
PPM continues to build on its impressive growth record. Operating profit, excluding goodwill amortisation, rose by GBP3 million ($5 million) to GBP8 million ($14 million) mainly from increased volumes from new wind generation resources, much of which commenced in December 2003. Increased contribution from gas storage and the Klamath generation facility partly offset a reduction in energy management profitability and higher operating costs including depreciation.
Development work is underway on PPM's 7 BCF Waha gas storage and hub services project in west Texas. This facility is expected to cost approximately $74 million and will be developed in several phases over the next six years, with the first 2.4 BCF commissioned in 2006. Other potential gas storage projects under review include acquisition and internal development projects in the Gulf Coast that would add to PPM's 67 BCF of capacity under control.
Responsible for almost a third of new wind developments in the US in 2003, PPM has received final permit approval for two new windfarm sites in Minnesota and Oregon. These new windfarm developments are expected to start when the US Production Tax Credit is passed by Congress, currently anticipated either later in the year or early in calendar 2005.
FINANCIAL REVIEW
ScottishPower employs a financial hedging strategy which continues to mitigate the impact on earnings of the weaker US dollar and we expect this benefit to continue for the full year to March 2005 with an expected hedge translation rate in the range $1.50 - $1.55.
Group turnover to June 2004 increased by GBP236 million to GBP1,481 million. The weaker US dollar reduced sterling revenues of PacifiCorp and PPM by GBP69 million, which is mitigated by our hedging strategy at an earnings level. PacifiCorp's dollar turnover increased marginally, primarily due to rate increases in retail revenue partially offset by reduced recoveries of deferred power costs. Infrastructure Division's turnover increased by 9% due to higher regulated revenues. The UK Division's turnover increased by 44% mainly as a result of revenues from energy balancing activities, improved retail electricity and gas sales reflecting the increased customer base and higher prices, and the inclusion of Damhead Creek turnover for the first time. PPM's turnover was higher by GBP70 million (103%) due to increased energy management revenues from optimisation of storage assets and sales of natural gas; and added revenues from new wind facilities and increased production at Stateline.
Group operating profit reduced by GBP13 million in the quarter, and, excluding goodwill amortisation, was lower by GBP16 million at GBP250 million. As previously discussed, PacifiCorp started the year less strongly, with operating profit, excluding goodwill amortisation, lower by GBP52 million. However, significant operating profit improvements were delivered by Infrastructure, UK Division and PPM of GBP11 million, GBP22 million and GBP3 million, respectively.
The net interest charge reduced by GBP12 million to GBP50 million in the quarter, including the translation benefit from the weaker US dollar and the benefit to interest from our dollar balance sheet hedging strategy.
Profit before tax was GBP170 million, in line with last year. Excluding goodwill amortisation, profit before tax reduced by GBP4 million to GBP200 million due to the impact of PacifiCorp's results, substantially offset by operating profit improvements in our other businesses and lower interest charges.
In line with last year's results, the effective rate of tax, excluding goodwill amortisation, has remained at 27%. The tax rate benefits 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. The effective rate of tax on profit before tax was 32%, in line with the equivalent period last year. Earnings per share improved by 0.03 pence to 6.29 pence for the quarter. Excluding goodwill amortisation, earnings per share reduced by 0.15 pence to 7.93 pence.
Cash flows from operating activities reduced by GBP160 million to GBP136 million for the quarter, mainly due to lower operating profit in PacifiCorp, and an increase in working capital including higher gas stocks in PPM and higher coal stocks in UK Division which will benefit performance later in the year. Interest, tax and dividend payments totalled GBP188 million. Other net inflows which impact net debt, other than net investment in assets and acquisitions, were GBP50 million, mainly as a result of a GBP68 million cash receipt arising on the maturing of cross-currency swaps. Net capital investment cash spend including Damhead Creek was GBP528 million. After the GBP35 million adverse effect of foreign exchange and other non-cash movements, net debt at 30 June 2004 was GBP4,289 million, GBP565 million higher than at 31 March 2004. Gearing (net debt/equity shareholders' funds) was 91%, compared to 79% as at 31 March 2004. The group remains committed to maintaining its A- credit rating for its principal operating subsidiaries.
The group's net investment was GBP522 million in the quarter, with growth expenditure totalling GBP400 million and GBP122 million invested in refurbishment. In PacifiCorp, GBP62 million was spent on generation plant refurbishment and overhauls, network reinforcement and replacement and on hydro relicensing, mining and information technology projects. In Infrastructure Division, GBP39 million was primarily spent on refurbishing the network and included equipment replacement and modernisation programmes. Within the UK Division, other capital investment of GBP19 million included spend on generation plant overhauls and ongoing refurbishment projects at our hydro stations which will allow the capture of Renewables Obligation Certificates. In PPM other capital expenditure of GBP2 million was primarily spent on enhanced pollution control at the Klamath Falls peaking plant.
The dividend for the first quarter of 2004/05 will be 4.95 pence per share, an increase of 4.2% on the prior year, payable on 28 September 2004. The ADS dividend rate will be confirmed in a separate announcement today. The dividend for each of the first three quarters of 2004/05 is set at 4.95 pence per share with the balance of the total dividend to be set in the fourth quarter. We remain committed to our aim to grow dividends broadly in line with earnings.
We remain on track to commence reporting our consolidated Accounts in accordance with International Financial Reporting Standards with effect from 1 April 2005.
INVESTOR TIMETABLE
Key investor dates going forward are as follows:
18 August 2004 Shares go ex-dividend for the first quarter
20 August 2004 Last date for registering transfers to receive the
first quarter dividend
28 September 2004 First quarter dividend payable
10 November 2004 Announcement of results for the second quarter and
half year ending 30 September 2004
Safe Harbor
Some statements contained herein are 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", "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:
- 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;
- 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;
- the availability of operational capacity of plants;
- weather and weather related impacts;
- the success of reorganizational and cost-saving efforts;and
- development and use of technology, the actions ofcompetitors,
natural disasters and other changes to business conditions.
Group Profit and Loss Account
for the three months ended 30 June 2004
Three months ended
30 June
2004 2003
Notes GBPm GBPm
Turnover: group and share of joint 1,492.8 1,252.7
ventures and associates
Less: share of turnover in joint (11.2) (7.1)
ventures
Less: share of turnover in (0.3) (0.2)
associates
Group turnover 2 1,481.3 1,245.4
Cost of sales (962.4) (741.7)
Gross profit 518.9 503.7
Transmission and distribution (148.9) (122.8)
costs
Administrative expenses (including (156.3) (156.8)
goodwill amortisation)
Other operating income 6.2 8.4
Operating profit before goodwill 249.9 265.8
amortisation
Goodwill amortisation (30.0) (33.3)
Operating profit 2 219.9 232.5
Share of operating profit /(loss) 0.2 (0.1)
in joint ventures
Share of operating profit in 0.2 0.1
associates
Profit on ordinary activities 220.3 232.5
before interest
Net interest and similar charges
- Group (48.2) (60.5)
- Joint ventures (1.7) (1.3)
(49.9) (61.8)
Profit on ordinary activities
before goodwill amortisation
and taxation 200.4 204.0
Goodwill amortisation (30.0) (33.3)
Profit on ordinary activities 170.4 170.7
before taxation
Taxation 3 (54.1) (55.1)
Profit after taxation 116.3 115.6
Minority interests (including (1.0) (1.0)
non-equity)
Profit for the period 115.3 114.6
Dividends 5 (91.1) (87.5)
Profit retained 24.2 27.1
Earnings per ordinary share 4 6.29p 6.26p
Adjusting item - goodwill 1.64p 1.82p
amortisation
Earnings per ordinary share before 4 7.93p 8.08p
goodwill amortisation
Diluted earnings per ordinary 4 6.12p 6.25p
share
Adjusting item - goodwill 1.56p 1.81p
amortisation
Diluted earnings per ordinary 4 7.68p 8.06p
share before goodwill amortisation
Dividend per ordinary share 5 4.95p 4.75p
The above results relate to continuing operations.
The Notes below form part of these Accounts.
Group Cash Flow Statement
for the three months ended 30 June 2004
Three months ended
30 June
2003
(As restated
2004 - Note 1)
GBPm GBPm
Cash inflow from operating activities 135.6 295.4
Returns on investments and servicing of (56.4) (76.4)
finance
Taxation (18.2) (48.3)
Free cash flow 61.0 170.7
Capital expenditure and financial (208.2) (168.7)
investment
Cash flow before acquisitions and (147.2) 2.0
disposals
Acquisitions and disposals (319.4) (1.3)
Equity dividends paid (112.9) (132.2)
Cash outflow before use of liquid (579.5) (131.5)
resources and financing
Management of liquid resources 131.5 (8.9)
Financing
- Issue of ordinary share capital 9.5 2.8
- Redemption of preferred stock of (4.1) (4.6)
PacifiCorp
- Maturity of cross-currency swaps 67.7 -
- Net purchase of own shares held under (23.5) (25.9)
trust
- Increase in debt 31.4 144.0
81.0 116.3
Decrease in cash in period (367.0) (24.1)
Free cash flow represents cash flow from operating activities after
adjusting for returns on investments and servicing of finance and
taxation.
Reconciliation of Net Cash Flow to Movement in Net Debt
for the three months ended 30 June 2004
Three months ended
30 June
2004 2003
GBPm GBPm
Decrease in cash in period (367.0) (24.1)
Cash inflow from increase in debt (31.4) (144.0)
Cash (inflow)/outflow from movement in (131.5) 8.9
liquid resources
Change in net debt resulting from cash (529.9) (159.2)
flows
Foreign exchange movement (31.9) 104.0
Other non-cash movements (3.2) (2.2)
Movement in net debt in period (565.0) (57.4)
Net debt at end of previous period (3,724.5) (4,321.0)
Net debt at end of period (4,289.5) (4,378.4)
The Notes below form part of these Accounts.
Group Balance Sheet as at 30 June 2004
30 June
2003
30 June (As restated 31 March
2004 - Note 1) 2004
Notes GBPm GBPm GBPm
Fixed assets
Intangible 1,900.6 2,156.1 1,855.9
assets
Tangible assets 9,237.2 8,920.0 8,756.6
Investments
- Investments in
joint ventures:
Share of gross 170.8 109.6 180.8
assets
Share of gross (147.7) (109.5) (157.3)
liabilities
23.1 0.1 23.5
- Loans to joint 42.3 39.6 38.8
ventures
65.4 39.7 62.3
- Investments in 2.8 2.9 2.7
associates
- Other 126.6 145.9 129.8
investments
194.8 188.5 194.8
11,332.6 11,264.6 10,807.3
Current assets
Stocks 306.8 201.4 185.5
Debtors
- Gross debtors 1,452.3 1,689.7 1,576.2
- Less non-recourse financing (108.5) (140.8) (109.5)
1,343.8 1,548.9 1,466.7
Short-term bank 844.4 698.8 1,347.3
and other
deposits
2,495.0 2,449.1 2,999.5
Creditors: amounts falling due within one year
Loans and other (548.4) (376.0) (410.7)
borrowings
Other creditors (1,551.2) (1,566.9) (1,658.7)
(2,099.6) (1,942.9) (2,069.4)
Net current assets 395.4 506.2 930.1
Total assets less current 11,728.0 11,770.8 11,737.4
liabilities
Creditors: amounts falling due after more than one year
Loans and other (4,585.5) (4,701.2) (4,661.1)
borrowings (including convertible bonds)
Provisions for liabilities and charges
- Deferred tax (1,267.9) (1,290.1) (1,242.2)
- Other provisions (527.7) (605.0) (504.5)
(1,795.6) (1,895.1) (1,746.7)
Deferred income (584.5) (567.6) (577.8)
Net assets 2 4,762.4 4,606.9 4,751.8
Called up share capital 931.1 928.3 929.8
Share premium 2,283.9 2,266.9 2,275.7
Revaluation reserve 41.2 43.1 41.6
Capital redemption reserve 18.3 18.3 18.3
Merger reserve 406.4 406.4 406.4
Profit and loss account 1,023.9 878.0 1,019.1
Equity shareholders' 4,704.8 4,541.0 4,690.9
funds
Minority interests 57.6 65.9 60.9
(including non-equity)
Capital employed 4,762.4 4,606.9 4,751.8
Net asset value 4 256.4p 248.4p 256.2p
per ordinary share
The Notes below form part of these Accounts.
Approved by the Board on 12 August 2004 and signed on its behalf by
Charles Miller Smith, Chairman
David Nish, Finance Director
Notes to the Quarterly Accounts
for the three months ended 30 June 2004
1 Basis of preparation
(a) These quarterly Accounts have 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 quarterly Accounts are unaudited but have been formally reviewed by the auditors and their report to the company is set out below. The information shown for the year ended 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 year ended 31 March 2004 filed with the Registrar of Companies. The report of the auditors on these Accounts was unqualified and did not contain a Statement under either Section 237(2) or Section 237(3) of the Companies Act 1985.
(c) The group implemented UITF Abstract 38 'Accounting for ESOP trusts' ("UITF 38") in the financial year ended 31 March 2004. UITF 38 requires own shares held under trust to be deducted in arriving at shareholders' funds. Previously own shares held under trust were presented as fixed asset investments. Consequential adjustments were also made to Other creditors and Other provisions. Comparative figures for the three month period to 30 June 2003 have been restated in the Balance Sheet, Cash Flow Statement and related Notes.
The effect of UITF 38 on the group's previously reported net assets is as follows:
As at 30 June 2003
Fixed
asset Other Other Net
investments creditors provisions assets
GBPm GBPm GBPm GBPm
As previously
reported 311.5 1,576.5 611.1 4,714.2
Effect of
implementing new
accounting policy (123.0) (9.6) (6.1) (107.3)
As restated 188.5 1,566.9 605.0 4,606.9
(d) The relevant exchange rates applied in the preparation of these quarterly Accounts were $1.81/GBP (average rate for the three month period to 30 June 2004), $1.81/GBP (closing rate as at 30 June 2004), $1.62/GBP (average rate for the three month period to 30 June 2003), $1.65/GBP (closing rate as at 30 June 2003) and $1.84/GBP (closing rate as at 31 March 2004).
2 Segmental information
(a) Turnover by segment Three months ended 30 June
Total turnover Inter-segment External turnover
turnover
2004 2003 2004 2003 2004 2003
Notes GBPm GBPm GBPm GBPm GBPm GBPm
United Kingdom
UK Division
- Integrated
Generation
and Supply (i) 727.1 508.8 (6.7) (7.9) 720.4 500.9
Infrastructure 168.9 160.7 (82.1) (80.7) 86.8 80.0
Division -
Power Systems
United Kingdom total 807.2 580.9
United States
PacifiCorp 537.4 597.1 (1.2) (0.6) 536.2 596.5
PPM 140.3 70.6 (2.4) (2.6) 137.9 68.0
United States total 674.1 664.5
Total (ii) 1,481.3 1,245.4
(b) Operating profit by segment
Three months ended 30 June
Before Before
goodwill Goodwill goodwill Goodwill
amorti amorti amorti amorti
-sation -sation -sation -sation
2004 2004 2004 2003 2003 2003
Note GBPm GBPm GBPm GBPm GBPm GBPm
United Kingdom
UK Division - Integrated
Generation
and Supply (i) 23.6 (1.2) 22.4 2.1 (1.2) 0.9
Infrastructure 101.1 - 101.1 90.0 - 90.0
Division - Power Systems
United Kingdom
total 124.7 (1.2) 123.5 92.1 (1.2) 90.9
United States
PacifiCorp 116.7 (28.6) 88.1 168.5 (32.0) 136.5
PPM 8.5 (0.2) 8.3 5.2 (0.1) 5.1
United States total 125.2 (28.8) 96.4 173.7 (32.1) 141.6
Total 249.9 (30.0) 219.9 265.8 (33.3) 232.5
(i) UK Division - Integrated Generation and Supply completed the acquisition of the Damhead Creek CCGT power plant and associated contracts on 1 June 2004. The results of the acquired business in the period from acquisition are not material to the group's turnover and profit for the period.
(ii) In the segmental analysis turnover is shown by geographical origin. Turnover analysed by geographical destination is not materially different.
Net assets by segment
30 June
2003
30 June (As restated 31 March
2004 - Note 1) 2004
Note GBPm GBPm GBPm
United Kingdom
UK Division - 1,376.6 894.3 1,022.5
Integrated
Generation and
Supply
Infrastructure 2,365.7 2,216.9 2,337.4
Division - Power
Systems
United Kingdom total 3,742.3 3,111.2 3,359.9
United States
PacifiCorp 6,104.5 6,554.3 5,935.8
PPM 555.9 416.5 439.0
United States total 6,660.4 6,970.8 6,374.8
Total 10,402.7 10,082.0 9,734.7
Unallocated net (i) (5,640.3) (5,475.1) (4,982.9)
liabilities
Total 4,762.4 4,606.9 4,751.8
(i) Unallocated net liabilities include net debt, dividends payable, tax liabilities and investments.
3 Taxation
The charge for taxation, including deferred tax, for the three months ended 30 June 2004 reflects the anticipated effective rate for the year ending 31 March 2005 of 27% (year ended 31 March 2004 27%) on the profit before goodwill amortisation and taxation as detailed below:
Three months ended
30 June
2004 2003
GBPm GBPm
Profit on ordinary activities before taxation 170.4 170.7
Adjusting item - goodwill amortisation 30.0 33.3
Profit on ordinary activities before
goodwill amortisation and taxation 200.4 204.0
4 Earnings and net asset value per ordinary share
(a) Earnings per ordinary share have been calculated for both periods by dividing the 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
30 June
2004 2003
Basic earnings per share
Profit for the period (GBP million) 115.3 114.6
Weighted average share capital (number of 1,831.8 1,830.5
shares, million)
Diluted earnings per share
Profit for the period (GBP million) 118.2 114.6
Weighted average share capital (number of 1,929.8 1,834.3
shares, million)
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 earnings per ordinary share, on a basis which excludes goodwill amortisation, is based on the following adjusted earnings:
Three months ended
30 June
2004 2003
GBPm GBPm
Profit for the period 115.3 114.6
Adjusting item - goodwill amortisation 30.0 33.3
Adjusted earnings 145.3 147.9
ScottishPower assesses the performance of the group by adjusting 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 both 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 periods:
30 June
2003
30 June (As restated 31 March
2004 - Note 1) 2004
Net assets (as adjusted) 4,704.8 4,541.0 4,690.9
(GBP million)
Number of ordinary shares in 1,834.9 1,828.3 1,830.6
issue at the period end (as
adjusted)(number of shares,
million)
5 Dividends per ordinary share
The first interim dividend of 4.95 pence per ordinary share is payable on 28 September 2004 to shareholders on the register at 20 August 2004. A first interim dividend of 4.75 pence per share was declared in respect of the three months ended 30 June 2003.
6 Statement of total recognised gains and losses
Three months ended
30 June
2004 2003
GBPm GBPm
Profit for the period 115.3 114.6
Exchange movement on translation of overseas 46.1 (152.4)
results and net assets
Translation differences on foreign currency (44.3) 132.5
hedging
Total recognised gains and losses for the 117.1 94.7
period
7 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 profit for the financial period and equity shareholders' funds are set out in the tables below.
Three months ended
30 June
2004 2003
(a) Reconciliation of profit for the financial GBPm GBPm
period to US GAAP:
Profit for the financial period under UK GAAP 115.3 114.6
US GAAP adjustments:
Amortisation of goodwill 30.0 33.3
US regulatory net assets (9.2) (21.4)
Pensions 1.8 4.9
Depreciation on revaluation uplift 0.4 0.4
Decommissioning and mine reclamation (2.6) (2.3)
liabilities
PacifiCorp Transition Plan costs (2.1) (14.6)
FAS 133 106.6 36.6
Other (1.5) 8.6
238.7 160.1
Deferred tax effect of US GAAP adjustments (18.3) 11.5
Profit for the period under US GAAP before
cumulative adjustment for FAS 143 220.4 171.6
Cumulative adjustment for FAS 143 - (0.6)
Profit for the period under US GAAP 220.4 171.0
Earnings per share under US GAAP 12.03p 9.34p
Diluted earnings per share under US GAAP 10.99p 9.32p
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 three months ended 30 June 2003 of GBP(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.
30 June
2003
30 June (As restated 31 March
(b) Effect on equity 2004 - Note 1) 2004
shareholders' funds of
differences
between UK GAAP and US GBPm GBPm GBPm
GAAP:
Equity shareholders' funds 4,704.8 4,541.0 4,690.9
under UK GAAP
US GAAP adjustments:
Goodwill 572.3 572.3 572.3
Business combinations (198.6) (217.3) (196.1)
Amortisation of goodwill 182.9 77.9 150.0
US regulatory net assets 685.5 963.0 724.7
Pensions (18.9) (400.8) (18.9)
Dividends 91.1 87.5 112.9
Revaluation of fixed assets (54.0) (54.0) (54.0)
Depreciation on revaluation 12.8 10.9 12.4
uplift
Decommissioning and mine (17.9) (4.6) (14.9)
reclamation liabilities
PacifiCorp Transition Plan 20.4 39.4 22.2
costs
FAS 133 164.3 (61.7) 2.2
ESOP shares held in trust - 77.5 -
Other (13.1) 0.1 (12.9)
Deferred tax:
Effect of US GAAP (306.1) (137.3) (275.0)
adjustments
Effect of differences in 5.8 (26.7) 14.5
methodology
Equity shareholders' funds 5,831.3 5,467.2 5,730.3
under US GAAP
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 30 June 2004 of GBP164.3 million includes a net liability of GBP196.4 million which is subject to regulation and is therefore offset by a US regulatory asset of GBP196.4 million included within 'US regulatory net assets' above.
8 Acquisition
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 GBP313 million excluding expenses. Provisional fair values have been attributed to the assets and liabilities acquired. No goodwill is required to be recognised in respect of the acquisition.
9 Contingent liabilities
There have been no material changes to the group's contingent liabilities disclosed in the 2003/04 Annual Report and Accounts.
Independent Review Report To Scottish Power plc
Introduction
We have been instructed by the company to review the financial information, contained in the quarterly report, which comprises the Group Profit and Loss Account, the Group Cash Flow Statement, the Reconciliation of Net Cash Flow to Movement in Net Debt, the Group Balance Sheet and the related notes. We have read the other information contained in the quarterly report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.
Directors' responsibilities
The quarterly report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the quarterly figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquires of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Listing Rules of the Finanical Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the three months ended 30 June 2004.
PricewaterhouseCoopers LLP Chartered Accountants Glasgow 12 August 2004