Interim Results

24 Sep 2007 13:40

Northern Electric PLC24 September 2007 NORTHERN ELECTRIC plc INTERIM REPORT SIX MONTHS ENDED 30 JUNE 2007 NORTHERN ELECTRIC plc INTERIM REPORT - SIX MONTHS ENDED 30 JUNE 2007 COMMENTARY The interim accounts for the six months ended 30 June 2007 consolidate theresults of the Company and its subsidiaries (the "Group") and are prepared underInternational Financial Reporting Standards. The interim accounts do notcomprise statutory accounts within the meaning of Section 240 of the CompaniesAct 1985. With the exception of the determination of income tax expense and the estimateduseful lives of distribution network assets, the accounting policies and methodsof computation used in the preparation of these interim accounts are consistentwith the policies and methods used in the preparation of the Group's statutoryaccounts for the year ended 31 December 2006. The interim accounts include a one time benefit of £10.1m from a reduction indeferred income tax liabilities arising from the announcement made by theChancellor of the Exchequer in March 2007 to reduce the rate of corporation taxfrom 30% to 28% with effect from April 2008. Following a review of asset lives used for determining depreciation chargesassociated with the Group's electricity distribution network, the directorsaccepted the recommendation of that review and adopted a revised asset life of45 years with effect from 1 January 2007. On 6 June 2007, Ofgem announced that it required a total reduction of £2.1m inthe future price control revenues of Northern Electric Distribution Limited ("NEDL"), a wholly-owned subsidiary of the Company, and Yorkshire ElectricityDistribution plc ("YEDL"), an associated company in the CE Electric UK FundingCompany group, after Ofgem's investigation found that NEDL and YEDL hadmisreported performance data and had each breached the condition of theirelectricity distribution licences requiring them to provide information on thequality of aspects of their services. Of the total reduction of £2.1m, £0.9m isattributable to NEDL. Ofgem stated that the decision took into account thevoluntary disclosure that NEDL and YEDL had misreported data and may havebreached their licences and the action taken by the companies. No provision forthe reduction of £0.9m has been made in the accounts. On 12 July 2007, Ofgem confirmed that special condition C2 of NEDL's electricitydistribution licence had been modified to put into effect the decision announcedon 6 June 2007. Financial Overview During the six months ended 30 June 2007, the consolidated profit before tax was£50.6m, which represented a decrease of £7.9m when compared with the same periodin the prior year reflecting the full year impact of the restructuring of theGroup's new connections activities in April 2006 and higher depreciationcharges. No ordinary dividends were paid in the period resulting in £44.7m beingtransferred to reserves. Capital expenditure incurred during the period was £53.3m, primarily in relationto the electricity distribution network. Outlook The Group will continue to invest in its electricity distribution network andfocus on exceeding Ofgem's targets for customer service whilst endeavouring tominimise the level of operating costs. The majority of the Group's distribution revenues for the period to 31 March2010 have been set by Ofgem. Enquiries John Elliott Company Secretary (telephone number 0191 2235103) NORTHERN ELECTRIC plc INTERIM REPORT - SIX MONTHS ENDED 30 JUNE 2007 CONSOLIDATED INCOME STATEMENT 6 Months ended 6 Months Year ended 30 June 2007 ended 30 June 31 December 2006 2006 Unaudited Unaudited Audited £m £m £m Revenue 131.1 137.7 280.3Cost of sales (27.4) (34.8) (77.9) Gross profit 103.7 102.9 202.4 Distribution costs (31.8) (25.9) (54.2)Administrative expenses (10.1) (9.1) (17.0) Operating profit 61.8 67.9 131.2 Share of profit after tax of joint ventureaccounted for using the equity method 0.2 0.3 0.4 Other gains/(losses) - 0.1 (0.3)Investment income 7.0 7.3 16.2Finance costs (18.4) (17.1) (35.2) Profit before tax 50.6 58.5 112.3 Income tax expense (5.9) (18.8) (35.9) Profit from ordinary activities after tax 44.7 39.7 76.4 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE - SIX MONTHS ENDED 30 JUNE 2007 There is no other income or expense for the Group other than the profitsreported above. NORTHERN ELECTRIC plc INTERIM REPORT - SIX MONTHS ENDED 30 JUNE 2007 CONSOLIDATED BALANCE SHEET 30 June 30 June 31 December 2007 2006 2006 Unaudited Unaudited Audited £m £m £mNon-current assetsProperty, plant and equipment 1,126.1 1,043.3 1,092.1Intangibles 7.1 4.5 6.0Investments in joint venture 3.0 3.1 3.2Investments in other companies 0.1 13.6 0.1 Long-term securities - 100.0 -Retirement benefit asset 25.3 - 4.8Trade and other receivables 4.9 2.7 4.6 1,166.5 1,167.2 1,110.8 Current assetsInventories 19.1 17.7 17.2Trade and other receivables 43.2 45.6 55.6Short-term securities 100.0 - 100.0Cash and cash equivalents 72.6 163.5 79.1 234.9 226.8 251.9 Total assets 1,401.4 1,394.0 1,362.7 Current liabilities Trade and other payables (64.6) (82.4) (66.4)Current income tax liabilities (6.9) (22.5) (12.6) Deferred revenue (9.7) (8.3) (9.4)Borrowings (109.7) (15.2) (114.3)Provisions (4.2) (3.1) (3.7) (195.1) (131.5) (206.4) Net current assets 39.8 95.3 45.5 Non-current liabilitiesBorrowings (246.9) (346.8) (246.9)Deferred income tax liabilities (160.5) (156.1) (166.3)Retirement benefit obligations (1.3) (17.1) (1.3) Deferred revenue (338.4) (314.9) (327.3)Provisions (0.9) (0.7) (0.9) (748.0) (835.6) (742.7) Total liabilities (943.1) (967.1) (949.1) Net assets 458.3 426.9 413.6 EQUITYShare capital 72.2 72.2 72.2Share premium 158.8 158.8 158.8Retained earnings 221.1 189.7 176.4Other reserves 6.2 6.2 6.2 Total equity 458.3 426.9 413.6 The interim accounts were approved by the board of directors and authorised forissue on 21 September 2007 and were signed on its behalf by: P A Jones, Director NORTHERN ELECTRIC plc INTERIM REPORT - SIX MONTHS ENDED 30 JUNE 2007 CONSOLIDATED CASH FLOW STATEMENT 6 Months 6 Months Year ended ended 30 June ended 30 June 31 December 2007 2006 2006 Unaudited Unaudited Audited £m £m £m Net cash from operating activities 30.3 60.2 77.7 Investing activitiesDividends received from joint venture 0.4 0.6 0.6Payments related to disposal of business unit/subsidiary - (5.6) (6.7)Proceeds from disposal of property, plant and equipment 0.4 0.1 0.6Purchase of property, plant and equipment (57.2) (49.9) (114.4)Purchase of intangible assets (1.7) (0.8) (3.3)Receipt of customer contributions 25.9 16.6 33.2 Net cash used in investing activities (32.2) (39.0) (90.0) Financing activitiesEquity dividends paid - - (50.0)Movement in loan from parent undertaking (4.6) 1.8 0.9Repayment of borrowings - (6.0) (6.0) Net cash used in financing activities (4.6) (4.2) (55.1) Net (decrease)/increase in cash and cash equivalents (6.5) 17.0 (67.4) Cash and cash equivalents at beginning of period 79.1 146.5 146.5 Cash and cash equivalents at end of period 72.6 163.5 79.1 NORTHERN ELECTRIC plc INTERIM REPORT - SIX MONTHS ENDED 30 JUNE 2007 NOTES TO THE ACCOUNTS 1. REVENUE AND SEGMENTAL ANALYSIS The Group operates in two principal areas of activity, that of the distributionof electricity and engineering contracting, predominantly in the United Kingdom. 6 months ended 30 June 2007 (Unaudited) Engineering Distribution Contracting Other Total £m £m £m £m REVENUEExternal sales 101.8 25.1 4.2 131.1Inter-segment sales 0.1 - (0.1) - Total Revenue 101.9 25.1 4.1 131.1 SEGMENT RESULTSOperating profit(loss) 42.0 (0.7) 20.5 61.8Share of profit after tax of jointventure accounted for using the equitymethod 0.2 Investment income 7.0Finance costs (18.4) Profit before tax 50.6 OTHER INFORMATIONCapital additions 55.1 - (1.8) 53.3Depreciation and amortisation 19.5 0.1 (0.5) 19.1Amortisation of deferred revenue (4.6) - - (4.6) "Other" comprises business support units and consolidation adjustments. Sales and purchases between the different segments are made at commercialprices. Interest on loans to and from the different segments is charged at a commercialrate of interest. NORTHERN ELECTRIC plc INTERIM REPORT - SIX MONTHS ENDED 30 JUNE 2007 NOTES TO THE ACCOUNTS (continued) 1. REVENUE AND SEGMENTAL ANALYSIS (continued) 6 months ended 30 June 2006 (Unaudited) Engineering Distribution Contracting Other Total £m £m £m £m REVENUEExternal sales 100.2 34.8 2.7 137.7Inter-segment sales 1.0 8.8 (9.8) - Total Revenue 101.2 43.6 (7.1) 137.7 SEGMENT RESULTSOperating profit 46.1 3.7 18.1 67.9Share of profit after tax of jointventure accounted for using theequity method 0.3 Other gains 0.1Investment income 7.3Finance costs (17.1) Profit before tax 58.5 OTHER INFORMATIONCapital additions 54.5 0.2 (3.8) 50.9Depreciation and amortisation 16.4 0.3 (0.3) 16.4Amortisation of deferred revenue (3.5) - - (3.5) "Other" comprises business support units and consolidation adjustments. Sales and purchases between the different segments are made at commercialprices. Interest on loans to and from the different segments is charged at a commercialrate of interest. NORTHERN ELECTRIC plc INTERIM REPORT - SIX MONTHS ENDED 30 JUNE 2006 NOTES TO THE ACCOUNTS (continued) 1. REVENUE AND SEGMENTAL ANALYSIS (continued) Year ended 31 December 2006 (Audited) Engineering Distribution Contracting Other Total £m £m £m £m REVENUEExternal sales 196.4 78.1 5.8 280.3Inter-segment sales 1.6 8.9 (10.5) - Total revenue 198.0 87.0 (4.7) 280.3 SEGMENT RESULTSOperating profit 88.0 6.4 36.8 131.2Share of profit after tax of jointventure accounted for using theequity method 0.4 Other losses (0.3)Investment income 16.2 Finance costs (35.2) Profit before tax 112.3 OTHER INFORMATIONCapital additions 123.3 0.2 (5.6) 117.9Depreciation and amortisation 33.9 0.2 (0.6) 33.5Amortisation of deferred revenue (7.2) - - (7.2) "Other" comprises business support units and consolidation adjustments. Sales and purchases between the different segments are made at commercialprices. Interest on loans to and from the different segments is charged at a commercialrate of interest. NORTHERN ELECTRIC plc INTERIM REPORT - SIX MONTHS ENDED 30 JUNE 2007 NOTES TO THE ACCOUNTS (continued) 2. INCOME TAX EXPENSE 6 months ended 30 6 months ended 30 Year ended June June 31 December 2007 2006 2006 Unaudited Unaudited Audited £m £m £m Current tax 11.7 17.8 24.5 Deferred tax 4.3 1.0 11.4 Impact of rate change (10.1) - - Total income tax expense 5.9 18.8 35.9 Tax for the interim period is calculated by applying the effective average taxrate of 29% (2006: 30%) on profit before preference dividends accrued. Preference dividends are included within finance costs. This information is provided by RNS The company news service from the London Stock Exchange