Exhibit 99
Midlands Electricity plc
Annual Report & Accounts
for the year to 31 March 1996
CHAIRMAN'S STATEMENT
I am pleased to announce another successful year for Midlands Electricity.
Excellent results have been achieved through increased profits from our
Generation and Supply businesses, tight control of overhead costs, together
with significantly increased demand for electricity (up 4.2 per cent).
Profit before interest and exceptional items, at pounds sterling 214.1
million, was slightly ahead of last year (pounds sterling 213.5 million)
despite both a substantial reduction in the Company's allowed revenue
following the first Distribution Price Control Review and the absence of a
final dividend receivable by MEB in respect of its holding in The National
Grid Group plc ("NGG").
Midlands Power International, MEB's generation business, continued to make
excellent progress at home and overseas. The existing operations performed
well and we recently announced financial close of the 586MW Uch power project
in Pakistan. This is a significant achievement for our generation business.
We expect the financial close of our 478MW Turkish power station project in
the near future.
The year's results also included an exceptional profit after taxation of
pounds sterling 18.9 million mainly arising from the demerger of NGG (1994/95:
exceptional loss pounds sterling 30.0 million in respect of Powerhouse
Retail).
We were able to continue our price freeze for domestic customers throughout
the year, and as a result a typical domestic customer's bill is now some 17
per cent lower in real terms than in 1991. We have also improved our
performance against customer service standards, which are the highest in the
industry.
During the year, both customers and shareholders benefited from the demerger
of NGG. We gave a discount of pounds sterling 54.60 (inclusive of VAT) to our
approximately two million domestic customers, costing in total pounds sterling
110 million (inclusive of VAT), whilst shareholders received 809 NGG shares
for every 1000 MEB 50p shares then owned (before the 2 for 1 share split).
We have taken a number of steps to give effect to our commitment to return
value to shareholders. These include the share buy-back in early October
1994, ordinary dividends paid since then, the distribution of shares in NGG in
December 1995 and the payment of the Special Dividend in January 1996. The
total value returned to shareholders since 1 October 1994 has as a result been
approximately pounds sterling 778 million; equivalent to 49 per cent of MEB's
market capitalisation at that date.
On 7 May 1996 we announced details of a recommended cash offer for MEB by Avon
Energy Partners PLC ("Avon Energy"), a joint venture company owned equally by
Cinergy Corp. and General Public Utilities Corporation of the US. This offer
taken together with the Special Dividend of 20p (net) per share, values each
share in MEB at 440p, and values the whole of MEB on a fully diluted basis at
approximately pounds sterling 1.73 billion.
By accepting the Avon Energy offer, shareholders will have received since 8
December 1995 a total value in cash and NGG shares of 573.9p per new share in
addition to ordinary dividends paid. This represents a price-earnings
multiple of 13.4 times adjusted 1995/96 earnings or 14.4 times adjusted
1994/95 earnings. Since privatisation, the total compound return to
shareholders will have been 38 per cent per annum. (Appendix I, attached,
sets out the basis of calculation of these figures.)
Avon Energy now holds or has received acceptances for more than 77 per cent of
MEB's shares and I am delighted that the Secretary of State for Trade and
Industry confirmed on 5 June 1996 that Avon Energy's offer is not to be
referred to the Monopolies and Mergers Commission ("MMC").
As a result of the offer, a strong international alliance of energy companies
will be created, with substantial financial strength. In the UK this will
support MEB's commitment to provide competitive, high quality service to its
customers and strengthen our preparation for full competition in the
electricity and gas markets in 1998.
I intend to retire from MEB at the end of August 1996 and will leave confident
that MEB customers will continue to benefit from privatisation and that MEB
will continue to perform well.
Bryan S Townsend CBE
Chairman
FINANCIAL REVIEW
Profit and Loss
Pre-exceptional operating profit, at pounds sterling 197.6 million, was
slightly ahead of last year (pounds sterling 196.0 million). Increased
Generation and Supply Business profits offset lower Distribution profits
resulting from the Distribution Price Control Review.
Income from Investments and Associates was lower at pounds sterling 16.5
million (1994/95 pounds sterling 17.5 million). The absence of a final NGG
dividend (1994/95 final pounds sterling 12.4 million) following its demerger
in December 1995 was almost wholly compensated by increased Generation
investment returns and the elimination of losses at Powerhouse Retail, which
was disposed of during the year.
Net interest payable of pounds sterling 4.3 million compared with net interest
receivable in 1994/95 of pounds sterling 4.5 million. The increased interest
cost arose from a combination of the share buy-back in October 1994 and the
Special Dividend paid in January 1996. As a result, pre-exceptional profit
before taxation was pounds sterling 209.8 million compared with pounds
sterling 218.0 million in 1994/95. The benefit of a lower effective tax rate
resulted in a pre-exceptional profit after taxation of pounds sterling 152.7
million compared with pounds sterling 155.5 million last year.
In addition there was an exceptional profit after taxation of pounds sterling
18.9 million (1994/95 exceptional loss pounds sterling 30.0 million in respect
of Powerhouse Retail) which mainly arose from the consequences of the demerger
of MEB's interest in NGG.
Balance Sheet and Cash Flow
Following the return of value to shareholders during the year by means of the
distribution of MEB's shareholding in NGG and the payment of the Special
Dividend, shareholders' funds reduced to pounds sterling 500.8 million (March
1995 pounds sterling 676.6 million), whilst net borrowings increased to pounds
sterling 225.6 million (March 1995 pounds sterling 18.1 million). As a
result, gearing at 31 March 1996 was 45.0 per cent (March 1995 2.7 per cent).
TRADING REVIEW
Distribution Business
Distribution performed strongly within a background of tighter price control.
Increased volumes of electricity sold and tight control of overhead costs
offset to a significant extent the reduction in allowed revenue arising from
the first Distribution Price Control Review. As a result, operating profit
for the year, at pounds sterling 167.1 million, compared with pounds sterling
179.2 million last year.
Units distributed increased by 4.2 per cent to 25,081 GWh (1994/95 24,079
GWh), the increase being mainly attributable to the commercial and industrial
sectors.
Our current three-year cost reduction and productivity improvement programme
in the electricity businesses is running ahead of schedule. The programme is
89 per cent complete after two years with 1,064 staff having left the company
in the period from 1 April 1994 to 31 March 1996, all on voluntary terms.
Overall, we have reduced controllable costs by a further 12.7 per cent in real
terms during the year.
Supply Business
The Supply Business continued to perform well in an increasingly competitive
trading environment and operating profit increased by some 5.5 per cent from
pounds sterling 25.4 million to pounds sterling 26.8 million.
Generation Business
Midlands Power International, our Generation Business, continued to make
excellent progress both in the UK and overseas with an operating profit of
pounds sterling 8.3 million (1994/95 pounds sterling 3.3 million loss). The
most significant event was the recent financial close of the 586MW Uch power
project in Pakistan, in which MEB has a 40 per cent equity interest.
Other unregulated businesses
Other unregulated businesses made a profit of pounds sterling 4.0 million
compared with a loss of pounds sterling 6.4 million in the previous year. The
Company has benefited from the sale of its interest in Powerhouse Retail
Limited.
Current Trading and Prospects
Trading in the current year has started well and, in the context of the second
stage of the Distribution Price Control Review which took effect from 1 April
1996, the Board looks forward to further satisfactory results for the year as
a whole.
The proposed final dividend for the year of 12.375p (net) per share - only to
be paid in the event of the recommended cash offer by Avon Energy not
proceeding - will be paid on 3 October 1996. The record date would therefore
be 23 July 1996 and the ex-dividend date 15 July 1996.
DIRECTORS' REPORT
The Directors submit their report and the audited accounts for Midlands
Electricity plc for the year to 31 March 1996.
Principal activities
The principal activities of the Group are the distribution and supply of
electricity to industrial, commercial and domestic customers; power
generation; the supply of natural gas; electrical contracting and energy
services.
Through its wholly owned subsidiary Midlands Power International Ltd, the
Group owns and operates power stations at Hereford, Fort Dunlop (Birmingham)
and Redditch, and holds investments in Teesside Power Ltd, Humber Power Ltd,
hydro electric generation companies in Spain and Portugal and undertakes a
number of overseas generation projects.
Through its wholly owned subsidiary Midlands Gas Ltd the Group operates a gas
supply business to a range of industrial and commercial customers.
Post balance sheet event
It was announced on 7 May 1996 that a cash offer for the whole of the issued
share capital of Midlands Electricity plc had been received from Avon Energy
Partners PLC a company controlled by Cinergy Corp and General Public Utilities
Corporation of the USA. The terms of this recommended offer, which was set
out in a document sent to shareholders dated 13 May 1996, are for each
Midlands Electricity share 420p in cash plus a special dividend of 20p(net).
The special dividend is payable subject to the offer becoming wholly
unconditional.
Financial results and review of the business
The financial results of the group and its main operations, including future
business developments, are discussed in the Chairman's Statement and the
Financial and Trading Reviews.
The key events dealt with in the year were:-
(a) On 14 November 1995 by an agreement made between (1) Eastern Group plc,
MEB and Southern Electric plc (the "vendors") and (2) CHB Group Limited
(the "Purchaser") pursuant to which the Vendors sold and transferred (i)
all of the issued share capital of Powerhouse Retail Limited
("Powerhouse") to the Purchaser in consideration for pounds sterling 6 in
cash and deferred consideration of pounds sterling 21,710,000 (less
adjustments to be made in respect of certain defined tax events); and
(ii) certain loan notes of Powerhouse to the Purchaser in consideration
for the aggregate of pounds sterling 3 in cash, together with the value
of accrued interest on such loan notes at completion of the agreement
which was in total pounds sterling 277,890.41. MEB is entitled to 28 per
cent of such consideration.
(b) On 8 December 1995 a resolution was passed at an Extraordinary General
Meeting to distribute the Company's shares in National Grid Group plc
(NGG) on the basis of 0.809 NGG shares for each MEB 50p share then in
issue. Prior to the distribution, which took place on 11 December 1995,
MEB's investment in NGG was revalued to pounds sterling 320.7 million
based on the closing price on the first day of unconditional dealings in
shares on the London Stock Exchange. The distribution in specie amounted
to pounds sterling 319.5 million, the shortfall arising from the
aggregation of fractions and shares distributed in respect of shares held
by the Company's Employee Share Ownership Plan. Further information is
given in note 6 to the financial statements.
(c) As part of the distribution process referred to in (b) above shares in
the holding company of First Hydro Ltd (comprising two pumped storage
power stations at Dinorwig and Ffestiniog in Wales) were distributed to
the Regional Electricity Companies. First Hydro was sold by tender and
the Group's share of the proceeds of this sale (pounds sterling 56.3
million) are included as an exceptional item in these accounts.
(d) During the year the group invested pounds sterling 14.0 million in mini
hydro generation projects in both Spain and Portugal.
(e) The results for the year recognise the effect of the financial close of
the 586 Megawatt gas fired Uch power generation project in Pakistan, via
the company's 40% interest in Uch Power Limited.
Dividends
The Directors recommend a final dividend, subject to shareholder approval, of
12.375p (net) per share, payable on 3 October 1996. This results in a total
of 68.5p (net) for the year (1995: 29.75p).
The proposed final dividend for year of 12.375p (net) per share is to be paid
only in the event of the recommended cash offer by Avon Energy Partners PLC
not proceeding. Should the Avon Energy offer go wholly unconditional then a
20p (net) special dividend will be paid.
Research and development
The Company carries out a significant proportion of its research and
development through collaborative programmes at Electricity Association
Technology Ltd, the industry's research organisation. In addition, staff at
the Company's Energy Technology Centre undertake projects to design and
develop electrical equipment and utilisation with optimum power efficiency,
working closely with other research organisations, universities, equipment
manufacturers and end users.
Share capital
The authorised share capital of the Company, together with movements in shares
issued, is shown in Note 21 to the accounts.
Donations
During the year to 31 March 1996 the Group made donations of pounds sterling
126,192 to a wide range of charitable organisations. We continued our
partnerships with Help the Aged and Neighbourhood Energy Action, to whom we
donated pounds sterling 500,000 and pounds sterling 1 million respectively in
the previous year.
Substantial shareholdings
Except for the disclosable holdings of ordinary shares listed below, the
Directors are not aware of any shareholder owning 3% or more of the ordinary
share capital of the Company at 5 June 1996.
Number of Shares % held
Avon Energy Partners PLC 114,936,823 29.28
Prudential Corporation 20,716,068 5.27
Legal & General Assurance Society 12,964,462 3.3
Directors
The following served as Directors during the year: Mr Bryan Townsend, Mr Peter
Chapman, Mr Gareth Davies, Mr Garry Degg, Mr Francis Graves, Mr Michael
Hughes, Dr Janet Morgan, Mr Roger Murray, Mr John Neill and Sir Terence
Harrison (appointed 1 September 1995).
During and as at the end of the financial year, none of the Directors was
materially interested in any contracts of significance in relation to the
business of the Group. No Director held an interest in the shares of any
subsidiary company other than as a non-beneficial nominee.
In accordance with the Company's Articles of Association Mr Francis Graves, Mr
Michael Hughes and Mr Roger Murray retire by rotation and offer themselves for
re-election. In addition Sir Terence Harrison who became a Director on 1
September 1995 will seek re-election.
Mr Hughes and Mr Murray in common with other Executive Directors each have a
general contract with the Company. These contracts can be terminated by them
giving the Company 12 months notice or alternatively the Company giving 24
months notice.
On 5 June 1996, the Nominations Committee extended the expiry of Mr B S
Townsend's Agreement as Chairman from 1 July 1996 to 31 August 1996 and the
Remuneration Committee confirmed his existing terms and conditions for that
period.
The Directors' interests in the shares of the Company are as shown in Note 8
to the accounts.
Employees
During the year the Company invested pounds sterling 4.5 million in training
to develop the talents and skills of employees. Employees are consulted
regularly on a wide range of matters affecting both their and the Company's
current and future interests. The communication methods used include a
monthly newspaper, team briefing and video programmes. Midlands Electricity
is committed to equal opportunities in employment and aims to select people
based on ability and aptitude in relation to the jobs for which they apply.
As part of our equal opportunities policy we give full consideration to
disabled people in employment, career development, training and promotion as
well as making every effort to retain people who become disabled.
Health and safety
The Company's Health and Safety Policy fully recognises its responsibility for
the health and safety of employees and members of the community in which they
work. Our Total Safety initiative involves every employee and further
improvements in safety performance have and are being achieved through the
development of risk assessment techniques.
Caring for the environment
The duty of environmental care is an underlying principle, covering all the
Group's operations and programmes, and is applied responsibly through
practical policies. Our policy statement is available free from MEB offices.
Energy efficiency
As part of our support for the Government's `Making a Corporate Commitment'
campaign, we set a target of reducing energy consumption in our own premises
by 15% over the five years from 1993/94 to 1997/98. By 31 March 1996 we had
achieved a reduction of 18%.
Close company provisions
The Company is not a close company within the provisions of the Income and
Corporation Taxes Act 1998.
Regulatory Accounts
Additional accounts are prepared for the Director General of Electricity
Supply as required by our Public Electricity Supply Licence. Extracts from
these regulatory accounts are available free from the Company Secretary.
Creditor payment policy
The company's current policy concerning the payment of the majority of its
trade creditors is to follow the CBI's Prompt Payers Code (copies are
available from the CBI, Centre Point, 103 New Oxford Street, London WC1A 1DU).
For other suppliers, the company's policy is to:
(a) settle the terms of payment with those suppliers when agreeing the terms
of each transaction;
(b) ensure that those suppliers are made aware of the terms of payment by
inclusion of the relevant terms in contracts; and
(c) pay in accordance with its contractual and other legal obligations.
The payment policy applies to all payments to creditors for revenue and
capital supplies of goods and services. Wherever possible UK subsidiaries
follow the same policy and overseas subsidiaries are encouraged to adopt
similar policies, by applying local best practices.
Future developments
The Group will continue to develop its business in the energy sector, taking
advantage of appropriate profitable opportunities while concentrating on the
sound management of its core electricity business.
Auditors
A resolution to re-appoint Coopers & Lybrand as the Company's auditors will be
proposed at the Annual General Meeting.
5 June 1996
By Order of the Board of Directors
Hugh C Hamilton
Company Secretary
Secretary and Registered Office
Hugh C Hamilton, Company Secretary, Midlands Electricity plc,
Mucklow Hill, Halesowen, West Midlands B62 8BP
Telephone 0121 423 2345
Registered in England and Wales. No. 2366928
REMUNERATION COMMITTEE REPORT ON DIRECTORS' REMUNERATION
The remuneration of the Executive Directors is set by the Remuneration
Committee of the Board which consists solely of the non-Executive Directors of
the Company. The Committee determines the detailed terms of service of the
Executive Directors including basic salary, incentive schemes, other benefits
and the terms upon which their service is terminated. It receives advice and
information from leading independent firms of compensation and benefit
consultants.
The Committee supports the principles of the Code of Best Practice published
in July 1995 in the Greenbury Report. In determining future remuneration
policy and practice, the Committee will continue to give full consideration to
these best practice provisions.
General Policy
The Remuneration policy for Executive Directors is designed to attract, retain
and motivate executives of the high calibre required to ensure that the
Company is managed successfully to the benefit of shareholders [stakeholders].
In order to achieve this the Company must provide a competitive package of
rewards and incentives linked to performance. The Committee therefore takes
into account information provided in respect of other companies of similar
type, size and complexity.
Basic Salary
The salary of Executive Directors is based on a number of factors including
market rates together with the individual Director's experience,
responsibilities and performance. Individual salaries are reviewed annually
by the Committee which takes account of these various factors.
The fees received by each of the non-Executive Directors are determined by the
Board of Directors as a whole.
Annual Performance Related Bonus
The Committee believes that there should be an annual bonus scheme which
focuses the Executives' attention on demanding performance targets during the
year. In the past such schemes have been related to Earnings per Share but
this year a change was made to link the bonus payment to performance criteria
related to a) cost reductions in MEB's regulated businesses and b) the
progress and financial performance of generation projects.
This bonus scheme is subject to a cap of 25% of basic salary. The Executive
Directors will receive a bonus of 19% in respect of the 1995-96 scheme.
Long Term Incentive Schemes
The Greenbury Report expressed the view that Directors should have a bonus
scheme related to the longer term and which is effective in linking the
interests of Directors to those of shareholders. The Remuneration Committee
strongly supports this view and will be seeking the approval of shareholders
at the AGM for such a scheme. The existing Executive Share Option Scheme
will be terminated.
Service Contracts
In June 1995 the four Executive Directors, P L Chapman, G W Degg, M A Hughes
and R D Murray requested that their Contracts should be reduced from three
years to two years. They therefore now have contracts with MEB determinable
by MEB on not less than 24 months' notice in writing or by themselves on not
less than 12 months' notice in writing.
On June 5th 1996 the Nominations Committee extended the expiry of Mr B S
Townsend's Agreement as Chairman from July 1st 1996 to August 31st 1996 and
the Remuneration Committee confirmed his existing terms and conditions for
that period.
Benefits in Kind
They comprised principally of car benefits and membership of the Company's
healthcare insurance scheme. The level of benefits provided to Executive
Directors is consistent with that provided by other major companies. These
benefits do not form part of pensionable earnings.
Pensions
The pensions of Executive Directors are based on final pensionable salary.
In the case of funded benefits the Company pays contributions to formally
constituted pension schemes independent of the Company. In the case of
unfunded benefits the Company makes provision within its own accounts. The
contributions to funded schemes and the provisions made in respect of unfunded
benefits are based on external actuarial advice.
Directors' Emoluments
Full details of Directors' Emoluments and their Share interests as required by
the Companies Act and the London Stock Exchange are set out in Note 8.
John Neill
Chairman of the Remuneration Committee
June 1996
CORPORATE GOVERNANCE
The Board supports the highest standards in corporate governance and is
pleased to confirm that the Group complies in all significant respects with
the Code of Best Practice published by the Cadbury Committee on the Financial
Aspects of Corporate Governance.
Board Composition
The Board comprises the Chairman, Mr Bryan Townsend, five Non-Executive and
four Executive Directors. The Board, collectively, is responsible for Group
policy and strategic matters and for securing the optimum performance from
Group assets. The Board usually meets monthly for regular business.
The Executive Directors meet as necessary to discuss in detail matters of
concern and other issues arising from the day to day operations of the Group.
The Non-Executive Directors draw upon their different backgrounds and wide-
ranging commercial and professional expertise to maintain a balance between
the interests of the Group's customers, shareholders, employees and the
community at large.
Board Committees
The Board has three committees.
The Audit Committee, chaired by Mr Gareth Davies, comprises Non-Executive
Directors only and meets four times a year. Mr Mike Hughes (Chief Executive),
Mr Peter Chapman (Executive Director Finance), the external Auditors and
members of the Internal Audit Department may be invited to attend. This
committee: reviews the key accounting policies, practices and financial
accounts, giving particular attention to the need for these to comply with
statutory and regulatory requirements and best practice; reviews the
suitability and effectiveness of the Group's internal controls and ensures
reliable internal financial information is available for decision making;
considers the work programme and findings of Internal Audit and the findings
of the external Auditors.
The Remuneration Committee, chaired by Mr John Neill, comprises Non-Executive
Directors only and ensures that the Group's policies on the remuneration and
benefits of senior executives are properly implemented and meet best practice.
No Director participates in any decision about his or her own remuneration
arrangements. In determining future remuneration and benefits, the Committee
has taken account of the recommendations of the Greenbury Committee and a full
report of the Remuneration Committee.
The Nominations Committee, chaired by Dr Janet Morgan, considers and makes
Board appointments. The Non-Executive Directors form the majority of this
Committee.
Going Concern
After making appropriate enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future. For this reason they continue to adopt
the 'going concern' basis in preparing the Group's financial statements.
Internal Financial Control
The recommendations of the Code of Best Practice are effective with regard to
internal financial controls in respect of accounting periods commencing after
1 January 1995. The Board of Directors is responsible for the Group's system
of internal financial control. It should be recognised that such a system
can only provide reasonable and not absolute assurance against material
misstatement or loss. During the past year, the Board has reviewed the
effectiveness of the Group's system of internal financial control. The key
features of the system which have been established are set out in the
paragraphs below.
Control Environment
The Group's control environment is ultimately the responsibility of the
Group's Directors and managers at all levels. The Group's organisational
structure has clear lines of responsibility. Operating and financial
responsibility for subsidiary companies is delegated to local boards although,
in the majority of cases, main Board Directors sit on subsidiary boards.
Commercial, accounting and ethical procedures are communicated to employees in
each subsidiary.
Identification of Business Risks
The Group's management has a clear responsibility for identifying the risks
facing each of the Group's businesses and for developing systems and
procedures to mitigate and monitor such risks. These risks are monitored on a
day to day basis by the Executive Directors and other members of the senior
management team. Significant concerns are discussed with the Non-Executive
Directors at the monthly Board Meeting.
Main Corporate Information Systems
The Group's accounting procedures manual sets out policies and financial and
accounting procedures. The Group operates a comprehensive budgeting and
financial reporting system which, as a matter of routine, compares actual out-
turn to budget. Management accounts are compiled on a monthly basis.
Variances from plan are investigated and updated forecasts prepared as
necessary. Cash forecasts are prepared on a regular basis to ensure that the
Group has adequate funds and resources for the foreseeable future.
Main Control Procedures
Management has established control procedures in response to the key risks
identified. Standard financial control procedures operate throughout the
Group to ensure the integrity of the Group's financial statements. The Board
has established procedures for the authorisation of expenditure.
Monitoring System Used by the Board
The Board reviews and approves budgets and monitors the Group's performance
against those budgets each month. Variances from the expected outcome are
investigated fully and should lapses in internal control be detected, these
are rectified. The Group's cash flow is also monitored monthly by the Board.
The Group has an independent Audit function. The Audit Manager has direct
access to the Executive Director Finance and the Chairman of the Audit
Committee. The Audit Manager is invited to attend Audit Committee meetings at
which the yearly plan of work, which is determined following an evaluation of
key commercial and financial risks, is approved and at which findings are
reported. The Audit Committee also considers the findings of the external
Auditors and takes appropriate action.
Compliance with Regulatory Matters
The Company has a dedicated department to ensure compliance with the terms of
its Public Electricity Supply Licence, to ensure that all regulatory returns
are made and that these accurately reflect relevant information. All returns
to the Director General of Electricity Supply are approved by an Executive
Director. Where such returns require significant judgement or are sensitive
because of the values or nature of the information disclosed, approval is
sought from the Board.
A statement of the Responsibilities of the Directors is given on page __.
REPORT OF THE AUDITORS
to Midlands Electricity plc on corporate governance matters
In addition to our audit of the financial statements, we have reviewed the
Directors' statement on the Group's compliance with the paragraphs of the Code
of Best Practice specified for our review by the London Stock Exchange. The
objective of our review is to draw attention to non-compliance with those
paragraphs of the Code which is not disclosed.
Basis of opinion
We carried out our review in accordance with Bulletin 1995/1 `Disclosures
relating to corporate governance' issued by the Auditing Practices Board.
That Bulletin does not require us to perform the additional work necessary to,
and we do not, express any opinion on the effectiveness of either the Group's
system of internal financial control or its corporate governance procedures,
nor on the ability of the Group to continue in operational existence.
Opinion
With respect to the Directors' statements on internal financial control and
going concern, in our opinion the Directors have provided the disclosures
required by paragraphs 4.5 and 4.6 of the Code (as supplemented by the related
guidance for Directors) and such statements are not inconsistent with the
information of which we are aware from our audit work on the financial
statements.
Based on enquiry of certain Directors and officers of the Group and
examination of relevant documents, in our opinion the Directors' statement
appropriately reflects the Group's compliance with the other paragraphs of the
Code specified for our review.
Coopers & Lybrand
Chartered Accountants
Birmingham
5 June 1996
CONTENTS
Responsibilities of the Directors
Report of the Auditors
Group profit and loss account
Statement of total recognised gains and losses
Balance sheets
Group cash flow statement
Notes to the accounts
Group financial history
RESPONSIBILITIES OF THE DIRECTORS
The Directors are required by UK company law to prepare financial statements
for each financial year which give a true and fair view of the state of
affairs of the Group at the end of the financial year and of the profit or
loss, total recognised gains and losses and cash flows for that year.
In preparing the financial statements, appropriate accounting policies have
been used and have been applied consistently. Applicable accounting standards
have been followed. Where it is necessary to make judgements and estimates,
they have been made on a reasonable and prudent basis. The Directors confirm
that the financial statements have been prepared on the going concern basis.
The Directors are also responsible for maintaining adequate accounting
records, for safeguarding the assets of the Group and for preventing and
detecting fraud and other irregularities.
By Order of the Board of Directors
Hugh C Hamilton
Company Secretary
5 June 1996
REPORT OF THE AUDITORS
to the members of Midlands Electricity plc
We have audited the financial statements on pages __ to __.
Respective responsibilities of Directors and Auditors
As described above, the Company's Directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements
made by the Directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the Group's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and the Group at 31 March 1996 and of the profit,
total recognised gains and cash flows of the Group for the year then ended and
have been properly prepared in accordance with the Companies Act 1985.
Coopers & Lybrand
Chartered Accountants and Registered Auditors
Birmingham
5 June 1996
Prepared in accordance with applicable Accounting Standards in the United Kingdom
GROUP PROFIT AND LOSS ACCOUNT
for the year ended 31 March 1996
Before Exceptional Items
Exceptional Items (Note 6) Total
Note 1996 1995 1996 1995 1996 1995
pounds sterling 000,000
_____________________________________________________________________________________________________________________________
Turnover - continuing operations 2 1438.3 1456.9 (102.5) - 1335.8 1456.9
Cost of sales (1030.6) (1024.3) 9.3 - (1021.3) (1024.3)
_____________________________________________________________________________________________________________________________
Gross profit 407.7 432.6 (93.2) - 314.5 432.6
Net operating expenses 3 (210.1) (236.6) (26.3) - (236.4) (236.6)
_____________________________________________________________________________________________________________________________
Operating profit - continuing operations 4 and 8 197.6 196.0 (119.5) - 78.1 196.0
Income from fixed asset investments 5 19.1 26.0 120.0 - 139.1 26.0
Net loss attributable to associated undertakings (2.6) (8.5) - - (2.6) (8.5)
Provision for loss on operations of associated
undertaking to be discontinued (Powerhouse) - - - (40.0) - (40.0)
Proceeds from sale of First Hydro Limited - - 56.3 - 56.3 -
_____________________________________________________________________________________________________________________________
Profit on ordinary activities before interest 214.1 213.5 56.8 (40.0) 270.9 173.5
Net interest (payable)/receivable 7 (4.3) 4.5 - - (4.3) 4.5
_____________________________________________________________________________________________________________________________
Profit on ordinary activities before taxation 2 209.8 218.0 56.8 (40.0) 266.6 178.0
Tax on profit on ordinary activities 9 (57.1) (62.5) (37.9) 10.0 (95.0) (52.5)
_____________________________________________________________________________________________________________________________
Profit on ordinary activities after taxation 152.7 155.5 18.9 (30.0) 171.6 125.5
Minority interests 20 0.9 0.7 - - 0.9 0.7
_____________________________________________________________________________________________________________________________
Profit for the financial year 153.6 156.2 18.9 (30.0) 172.5 126.2
Dividends 10 (263.1) (56.7) (319.5) - (582.6) (56.7)
_____________________________________________________________________________________________________________________________
(Loss)/profit retained 22 (109.5) 99.5 (300.6) (30.0) (410.1) 69.5
===== ===== ===== ===== ===== =====
Pence per Pence per Pence per Pence per Pence per Pence per
Earnings per ordinary share Share Share Share Share Share Share
_____________________________________________________________________________________________________________________________
Earnings per 25p ordinary share 11 40.1 38.7 4.9 (7.4) 45.0 31.3
===== ===== ===== ===== ===== =====
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 31 March 1996
1996 1995
pounds sterling 000,000
___________________________________________________________________________________
Profit for the financial year 172.5 126.2
Currency translation differences 0.4 -
Revaluation of investment in the National Grid Group plc 233.2 -
___________________________________________________________________________________
406.1 126.2
===== =====
Prepared in accordance with applicable Accounting Standards in the United Kingdom
BALANCE SHEETS
at 31 March 1996
Group Company
Note 1996 1995 1996 1995
pounds sterling 000,000
________________________________________________________________________________________________________
Fixed assets
Tangible assets 12 717.5 666.9 713.5 662.8
Investments 13 101.9 155.8 103.7 161.1
________________________________________________________________________________________________________
819.4 822.7 817.2 823.9
====== ====== ====== ======
Current assets
Stocks 14 7.4 7.9 6.5 7.3
Debtors 15 317.4 268.1 383.1 299.1
Short term deposits 16 31.7 40.7 - 12.0
Cash at bank and in hand 100.7 61.0 17.2 4.0
________________________________________________________________________________________________________
457.2 377.7 406.8 322.4
Creditors (Amounts falling
due within one year) 17 (667.9) (412.3) (614.4) (362.6)
________________________________________________________________________________________________________
Net current liabilities (210.7) (34.6) (207.6) (40.2)
===== ====== ====== ======
Total assets less current liabilities 608.7 788.1 609.6 783.7
Creditors (Amounts falling due after
more than one year) 17 (89.4) (69.0) (68.8) (50.9)
Provisions for liabilities and charges 18 (18.5) (41.6) (13.9) (37.2)
Minority interests 20 - (0.9) - -
________________________________________________________________________________________________________
Net assets 500.8 676.6 526.9 695.6
====== ====== ====== ======
Capital and reserves
Called up share capital 21 98.1 95.4 98.1 95.4
Share premium account 22 11.7 4.7 11.7 4.7
Capital redemption reserve 22 10.6 10.6 10.6 10.6
Revaluation reserve 22 0.9 - 0.9 -
Profit and loss account 22 379.5 565.9 405.6 584.9
________________________________________________________________________________________________________
Equity shareholders' funds 22 500.8 676.6 526.9 695.6
====== ====== ====== ======
The accounts on pages __ to __ were approved by the Board of Directors on 5
June 1996 and were signed on its behalf by:
B.S.Townsend CBE
Chairman
P.L.Chapman
Director
Prepared in accordance with applicable Accounting Standards in the United Kingdom
GROUP CASH FLOW STATEMENT
for the year ended 31 March 1996
Before Exceptional Items
Exceptional Items (Note 6) Total
Note 1996 1995 1996 1995 1996 1995
pounds sterling 000,000
_____________________________________________________________________________________________________________________________
Net cash inflow from operating activities 23 (a) 190.2 168.9 (114.6) - 75.6 168.9
===== ===== ===== ===== ===== =====
Returns on investments and servicing of finance:
Interest received 2.9 6.8 - - 2.9 6.8
Interest paid (4.3) (1.8) - - (4.3) (1.8)
Dividends received 23.2 21.1 100.0 - 123.2 21.1
Dividends paid (253.5) (50.6) - - (253.5) (50.6)
_____________________________________________________________________________________________________________________________
Net cash outflow from returns on
investments and servicing of finance (231.7) (24.5) 100.0 - (131.7) (24.5)
===== ===== ===== ===== ===== =====
Taxation:
UK corporation tax paid (including advance
corporation tax) (65.0) (77.0) - - (65.0) (77.0)
===== ===== ===== ===== ===== =====
Investing activities:
Long term:
Payments to acquire fixed assets (106.7) (117.8) - - (106.7) (117.8)
Customers' contributions 13.3 14.4 - - 13.3 14.4
Receipts from sales of fixed assets 1.2 7.3 - - 1.2 7.3
Investments in associated undertakings (10.4) (3.3) - - (10.4) (3.3)
Loans (made to)/ repaid by associated undertakings (1.0) 15.8 - - (1.0) 15.8
Payments to acquire fixed asset investments (26.1) (16.5) (15.8) - (41.9) (16.5)
Proceeds of sale of fixed asset investment - - 52.6 - 52.6 -
Purchase of subsidiary (net of cash acquired) (3.2) - - - (3.2) -
Other cash inflows from investing activities - 0.1 - - - 0.1
_____________________________________________________________________________________________________________________________
Net cash outflow from long term
investing activities (132.9) (100.0) 36.8 - (96.1) (100.0)
Short term:
Decrease in deposits of over three months maturity - 50.3 - - - 50.3
_____________________________________________________________________________________________________________________________
Net cash outflow from investing activities (132.9) (49.7) 36.8 - (96.1) (49.7)
===== ===== ===== ===== ===== =====
Net cash (outflow)/inflow before financing (239.4) 17.7 22.2 - (217.2) 17.7
===== ===== ===== ===== ===== =====
Financing:
Share buy-back - (154.5) - - - (154.5)
Issue of share capital 2.7 0.2 - - 2.7 0.2
Issue of equity shares in subsidiary to minority
shareholder - 1.0 - - - 1.0
Share premium received 7.0 0.5 - - 7.0 0.5
Increase/(decrease) in borrowings of over
three months maturity 45.0 (2.9) - - 45.0 (2.9)
_____________________________________________________________________________________________________________________________
Net cash inflow/(outflow) from financing 23 (d) 54.7 (155.7) - - 54.7 (155.7)
===== ===== ===== ===== ===== =====
Decrease in cash and cash equivalents 23 (b) (184.7) (138.0) 22.2 - (162.5) (138.0)
===== ===== ===== ===== ===== =====
Prepared in accordance with applicable Accounting Standards in the United
Kingdom
NOTES TO THE ACCOUNTS
1 Accounting policies
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom. A summary of the more
important Group accounting policies, which have been applied
consistently, is set out below.
Basis of preparation
The financial statements have been prepared using historical cost
accounting principles as modified by the revaluation of the Company's
interest in the National Grid Group plc (formerly National Grid Holdings
plc).
Basis of consolidation
The consolidated financial statements include the Company, its
subsidiaries and its share of associated undertakings. The results of
subsidiaries acquired or disposed of during the year are included in the
consolidated profit and loss account from the date of their acquisition
or up to the date of their disposal. Intra-group sales and profits are
eliminated fully on consolidation. The Group's share of profits less
losses in associated undertakings is included in the consolidated profit
and loss account and the Group's share of their net assets is included in
the consolidated balance sheet.
Goodwill
Goodwill arising on consolidation is the difference between the fair
value of consideration given on the acquisi-tion of a business and the
aggregate fair value of its separable net assets. It is written off
immediately to reserves.
Foreign currencies
The trading results of overseas undertakings are translated at average
rates of exchange and assets and liabilities at the rate of exchange
ruling at the balance sheet date. Differences resulting from the
retranslation at closing rates of the opening net assets and the results
for the year are taken to reserves and are reported in the statement of
total recognised gains and losses.
Turnover
The main element of turnover is the value of electricity consumption
during the year which includes an estimate of the sales value of units
supplied to customers between the date of the last meter reading and the
year end and the invoice value of goods and services provided, exclusive
of value added tax. Non-electricity turnover is the invoiced value of
goods sold or work performed, exclusive of value added tax.
Credit sales charges are apportioned in the trading business over the
period of the sales agreements.
K Factor
Where there is an over-recovery of supply or distribution revenues
against the regulated maximum allowable amount, revenues are deferred
equivalent to the over-recovered amount. The deferred amount is deducted
from turnover and included in accruals. Where there is an under-
recovery, no anticipation of any potential future recovery is made.
Computer software costs
Costs incurred on major computer software developments for the management
and operation of the electricity distribution network are charged to
capital in the year in which they are incurred. The total expected costs
associated with other major computer software developments are recognised
and written off to the profit and loss account in the year in which
development commences in accordance with the contract. Other computer
software costs are written off to the profit and loss account in the year
in which they are incurred.
Tangible assets
Tangible fixed assets are stated at cost less depreciation which is
calculated to write off assets over their useful economic lives. Where
appropriate, cost includes own labour and associated overheads.
Depreciation
The charge for depreciation is based on the estimated useful lives of
each major class of depreciable asset as follows:
Years
Distribution assets 40
Depreciation is charged at 3% for 20 years followed by 2% for
the remaining 20 years
Distribution network computer software development costs 15
Generation assets 15-25
Non-operational assets
Buildings - freehold Up to 60
- leasehold Lower of lease period or 60 years
Fixtures and equipment Up to 10
Vehicles and mobile plant Up to 10
Freehold land is not depreciated. No allowance is made for residual
values.
Customers' contributions
Customers' contributions are credited to the profit and loss account over
a 40 year period at a rate of 3% for the first 20 years followed by 2%
for the remaining 20 years.
Disposals
The profit or loss on the disposal of tangible fixed assets is taken to
the profit and loss account as part of the depreciation charge.
Property clawback
Arrangements have been put in place to entitle HM Government to a
proportion of any property gain (above certain thresholds) accruing or
treated as accruing to the Group as a result of the disposal, or deemed
disposal, after 31 March 1990 of land and any buildings on such land in
which the Group had an interest at that date. These arrangements will
last until 31 March 2000.
A provision for clawback in respect of property disposals is made only to
the extent that it is probable that a liability will crystallise. Such a
liability will crystallise when an actual or a deemed disposal occurs.
Fixed asset investments
The Group's share of the net assets of associated undertakings are
included in the Group balance sheet. Fixed asset investments are stated
at cost less provisions for permanent diminution in value.
Investments
Investment income is included in the accounts of the year in which it is
receivable.
Stocks
Stocks are valued at the lower of cost and net realisable value. The
valuation of work in progress is based on the cost of labour plus
appropriate overheads and the cost of materials. Progress invoices are
deducted in arriving at the amounts stated.
Long-term contractual commitments
In the ordinary course of business the Group enters into certain long
term contractual commitments for the purchase of gas and electricity.
These contractual commitments are only entered into on the basis of
forecast demand for the period covered by the contracts. Provision is
made, as appropriate, for any anticipated losses.
Research and development
Expenditure on research and development is written off to the profit and
loss account in the year in which it is incurred.
Deferred taxation
Deferred taxation arises in respect of items where there is a timing
difference between their treatment for accounting purposes and their
treatment for taxation purposes. Provision for deferred taxation, using
the liability method, is made to the extent that it is probable that a
liability or asset will crystallise in the foreseeable future.
Pension costs
Contributions to pension schemes are charged to the profit and loss
account so as to spread the cost of pensions over employees' working
lives with the Group. The capital cost of ex gratia and supplementary
pensions is charged to the profit and loss account in the accounting
period in which they are granted.
Financing costs in relation to unfunded pension obligations are charged
to net interest payable.
Leases
Rental costs under operating leases are charged to the profit and loss
account in equal annual amounts over the period of the lease.
2 Segmental analysis
Geographical analysis
Turnover is derived from operations within the UK.
By class of business
1996 1995
Inter- Inter-
Total segment External Total segment External
Sales Sales Sales Sales Sales Sales
Turnover pounds sterling 000,000
________________________________________________________________________________________
Distribution 362.6 301.4 61.2 388.5 334.9 53.6
Supply 1308.7 1.0 1307.7 1322.7 1.1 1321.6
Generation 4.5 - 4.5 9.2 1.9 7.3
Trading and other 76.1 11.2 64.9 82.2 7.8 74.4
________________________________________________________________________________________
1751.9 313.6 1438.3 1802.6 345.7 1456.9
Exceptional item (102.5) - (102.5) - - -
________________________________________________________________________________________
1649.4 313.6 1335.8 1802.6 345.7 1456.9
===== ===== ===== ===== ===== =====
1996 1995
Profit before taxation pounds sterling 000,000
______________________________________________________________________
Distribution 167.1 179.2
Supply 26.8 25.4
Generation 8.3 (3.3)
Trading and other 4.0 (6.4)
Other investment income 7.9 18.6
Net interest (payable)/receivable (4.3) 4.5
______________________________________________________________________
Profit before exceptional items 209.8 218.0
Exceptional items (note 6) 56.8 (40.0)
______________________________________________________________________
Profit before taxation 266.6 178.0
===== =====
1996 1995
Net assets pounds sterling 000,000
______________________________________________________________________
Distribution 714.7 643.2
Supply 7.8 1.4
Generation 89.3 55.5
Trading and other 24.8 2.7
Net unallocated liabilities (335.8) (26.2)
______________________________________________________________________
500.8 676.6
===== =====
Net unallocated assets and liabilities consist of fixed asset
investments, cash and short-term deposits, overdrafts, interest, taxation
and dividends which are not capable of allocation to a specific business.
3 Net operating expenses
1996 1995
pounds sterling 000,000
________________________________________________________________________
Distribution costs 100.7 98.1
Administrative expenses 113.5 121.0
Exceptional administrative expenses 26.3 -
Administrative expenses associated with the
ongoing restructuring of the Distribution and
Supply businesses (4.1) 17.5
________________________________________________________________________
236.4 236.6
===== =====
Exceptional administrative expenses relate to costs associated with the
demerger of the National Grid Group plc (pounds sterling 14.9 million),
PowerGen bid costs (pounds sterling 4.9 million) and compensation to
Sharesave scheme optionholders in respect of the Special Dividend (pounds
sterling 6.5 million).
4 Operating profit
1996 1995
Operating profit is stated after charging: pounds sterling 000,000
_________________________________________________________________________
Depreciation and profit or loss on disposal of
fixed assets 41.7 37.7
Auditors' remuneration:
audit fees - Company 0.2 0.1
- Other 0.1 0.1
non audit fees - Group and Company 0.2 0.1
Operating lease rentals - land and buildings 0.6 0.7
_________________________________________________________________________
5 Income from fixed asset investments
1996 1995
pounds sterling 000,000
_________________________________________________________________________
Unlisted 139.1 26.0
===== ====
6 Exceptional items
Exceptional items comprise the following: 1996 1995
pounds sterling 000,000
_________________________________________________________________________
Distribution in specie of shares in
National Grid Group plc (319.5) -
Demerger of National Grid Group plc (30.8) -
Proceeds of sale of First Hydro Limited 56.3 -
Costs relating to the PowerGen bid (4.9) -
Special dividend compensation to Sharesave
scheme optionholders (6.5) -
Corporation tax relief re Powerhouse Retail
Limited capital loss 4.8 10.0
Provision for costs of exit from Powerhouse
Retail Limited - (40.0)
_________________________________________________________________________
(300.6) (30.0)
====== =====
On 8 December 1995 a resolution was passed at an Extraordinary General
Meeting to distribute the Company's shares in National Grid Group plc
(NGG) on the basis of 0.809 NGG shares for each MEB 50p share then in
issue. Prior to the distribution, which took place on 11 December 1995,
MEB's investment in NGG was revalued to pounds sterling 320.7 million
based on a value of pounds sterling 2.07 per share, being the value
calculated by the Inland Revenue for Capital Gains Tax purposes. The
distribution in specie amounted to pounds sterling 319.5 million, the
shortfall arising from the aggregation of fractions of NGG shares
together with NGG shares distributed to the Company's Employee Share
Ownership Plan.
The demerger transaction gave rise to a one-off net impact of pounds
sterling 30.8 million comprising the following exceptional items:
pounds sterling 000,000
_________________________________________________________________________
Cost of customer discount (102.5)
Reduction in Fossil Fuel Levy arising
from the customer discount 9.3
NGG Special Dividend - Gross 99.9
NGG Second Dividend 15.8
NGG Rights Dividend 4.3 120.0
______________________
26.8
Corporation tax reduction relating to
customer discount 30.7
Tax on NGG Special Dividend (20.0)
Corporation tax charge arising from the
NGG distribution (53.4) (42.7)
______________________
(15.9)
Costs associated with NGG distribution (2.6)
Compensation to Sharesave scheme optionholders
in lieu of NGG distribution (12.3) (14.9)
_________________________________________________________________________
(30.8)
=====
As part of the distribution process, shares in the holding company of
First Hydro Ltd (comprising two pumped storage power stations at Dinorwig
and Ffestiniog in Wales) were distributed to the Regional Electricity
Companies. First Hydro was sold by tender and the Group's share of the
proceeds of this sale (pounds sterling 56.3 million) are included as an
exceptional item in these accounts.
The exceptional cashflows relating to the demerger of the National Grid
Group plc amounted to pounds sterling 22.2 million.
7 Net interest (payable)/receivable
1996 1995
pounds sterling 000,000
_________________________________________________________________________
Interest payable on bank loans, overdrafts and
other loans:
wholly repayable within five years other than
by instalments (5.1) (1.6)
repayable wholly or partly in more than
five years (0.7) -
Interest receivable 1.5 6.1
_________________________________________________________________________
(4.3) 4.5
==== ====
8 Directors and employees
Employment costs
The aggregate remuneration of all employees, including the Directors of
the Company, comprised:
1996 1995
pounds sterling 000,000
_________________________________________________________________________
Wages and salaries 99.3 96.5
Social security costs 7.8 9.2
Other pension costs (Note 24) (25.9) 26.8
_________________________________________________________________________
81.2 132.5
Less: charged as capital expenditure 22.0 25.1
_________________________________________________________________________
59.2 107.4
===== =====
Average number of employees
The average monthly number of employees, including Directors, during the
year was:
1996 1995
Number Number
_________________________________________________________________________
Managerial 48 56
Non-industrial 2,507 2,951
Industrial 2,486 2,713
Trainees 73 95
_________________________________________________________________________
5,114 5,815
===== =====
The aggregate number of employees at 31 March 1996 was 4,993 (31 March
1995 : 5,355).
Directors' emoluments
The remuneration of the Chairman and the Executive Directors is
determined by a Remuneration Committee which comprises the Non-Executive
Directors and is chaired by Mr John Neill. A full report from the
Remuneration Committee is set out on pages __ to __.
The Chairman has entered into an agreement with the Company which expires
on 31 August 1996. All the Executive Directors have service agreements
with the Company and are on a rolling two year period of service. The
Non-Executive Directors do not have service contracts.
The Directors' emoluments were:
Chairman Chief Executive All
B S Townsend M A Hughes Directors
1996 1995 1996 1995 1996 1995
pounds sterling 000
______________________________________________________________________________________________________
Remuneration 100 165 198 163 652 628
Benefits 9 11 7 8 40 52
Performance related bonus - - 37 29 106 83
______________________________________________________________________________________________________
109 176 242 200 798 763
Pension costs:
funded - - 10 10 55 51
unfunded - - 37 31 37 31
______________________________________________________________________________________________________
109 176 289 241 890 845
===== ===== ===== =====
Non-Executives - for preparation and attendance at Board and Committee meetings 92 80
_________________
982 925
=== ===
The total emoluments above comprise:
payments for services as Directors - fees 192 245
- benefits 9 11
_________________
201 256
payments for services as managers including pensions 781 669
_________________
982 925
=== ===
The Chief Executive is the highest paid Director (1995 : Chief
Executive).
Unfunded pension contributions in respect of the Chief Executive are
designed to provide the same level of pension benefits as other Directors
and reflect his relatively shorter length of service. The Chief
Executive continues to make personal contributions on his total
pensionable salary.
Directors received remuneration (excluding pension contributions) in the
ranges:
1996 1995
Number Number
_________________________________________________________________________
pounds sterling 240,001 - pounds sterling 245,000 1 -
pounds sterling 195,001 - pounds sterling 200,000 - 1
pounds sterling 175,001 - pounds sterling 180,000 - 1
pounds sterling 150,001 - pounds sterling 155,000 1 -
pounds sterling 145,001 - pounds sterling 150,000 2 -
pounds sterling 130,001 - pounds sterling 135,000 - 1
pounds sterling 125,001 - pounds sterling 130,000 - 1
pounds sterling 120,001 - pounds sterling 125,000 - 1
pounds sterling 105,001 - pounds sterling 110,000 1 -
pounds sterling 15,001 - pounds sterling 20,000 4 4
pounds sterling 10,001 - pounds sterling 15,000 1 -
_________________________________________________________________________
The other Executive Directors received remuneration as follows:
1996 1995
Salary Benefits Bonus Total Total
pounds sterling 000
_________________________________________________________________________
P. L. Chapman 118 9 23 150 131
G. W. Degg 118 10 23 151 129
R. D. Murray 118 5 23 146 125
_________________________________________________________________________
1996 Total 354 24 69 447 385
=== == == === ===
1995 Total 300 31 54 385
=== == == ===
Directors' interests in the shares of the Company
The beneficial interests of Directors in the shares of the Company as at
31 March 1996 were as follows:
Ordinary Shares Sharesave Scheme
1996 1995 1996 1995
_________________________________________________________________________
P. L. Chapman 106,377 92,772 - 9,771
G. Davies 2,500 2,500 - -
G. W. Degg 67,501 50,206 - 9,771
F. C. Graves 2,500 2,500 - -
Sir Terence Harrison - - - -
M. A. Hughes 51,338 31,236 - 9,771
Dr. J. P. Morgan 500 500 - -
R. D. Murray 44,632 52,446 - 9,771
J. M. Neill 5,832 5,832 - -
B. S. Townsend 198,761 178,918 - 9,771
_________________________________________________________________________
Note: March 1995 shareholdings have been adjusted to reflect the two-for-
one share split on 13 January 1996.
On 1 March 1996 the Sharesave Scheme matured and the Directors with
options exercised their right to purchase shares through the scheme. In
addition, in common with all members of the Sharesave Scheme, the
Chairman and Executive Directors were entitled to receive compensation
for the non-receipt of the Special Dividend paid on 30 January 1996.
Each received a sum of pounds sterling 6513.35. No Director holds any
outstanding executive scheme options. Furthermore none have been granted
between 1 April 1996 and 6 June 1996.
In the same way as all Group employees, the Directors are potential
beneficiaries under the Employee Share Ownership Plan set up on 5 April
1993 and to that extent have an interest in the 932,525 ordinary shares
held by the Trustees of that plan and referred to in the Directors'
Report.
Since 31 March 1996, M. A. Hughes purchased 43 shares. In the same
period, as a result of the re-investment of tax credits and dividends in
Personal Equity Plans, the following Directors acquired shares as
follows: P. L. Chapman (504), G. W. Degg (989), M. A. Hughes (1364), R.
D. Murray (412), B. S. Townsend (1,304). Also, the following Directors
have sold and then repurchased shares through General Personal Equity
Plans:
Bought
Sold in PEP
_________________________________________________________________________
G. W. Degg 1483 1469
R. D. Murray 1483 1469
B. S. Towmsend 1483 1469
_________________________________________________________________________
9 Tax on profit on ordinary activities
1996 1995
pounds sterling 000,000
_________________________________________________________________________
Taxation on profit for the year:
UK corporation tax at 33% (1995 : 33%)
current 48.5 49.5
exceptional 7.9 -
Amount payable to consortium company for group relief 3.8 3.0
Deferred taxation:
current 2.7 8.7
exceptional 10.0 (10.0)
Tax on franked investment income:
current 2.1 3.7
exceptional 20.0 -
Associate tax credit - (2.4)
_________________________________________________________________________
95.0 52.5
==== =====
The pre-exceptional effective tax rate of 27.2% arises from the impact of
accelerated capital allowances against which no deferred taxation has
been provided. Exceptional items relate to taxation arising on the
demerger of the National Grid Group plc of pounds sterling 42.7 million
and corporation tax relief on the capital loss and consortium relief
relating to the disposal of Powerhouse Retail Limited of pounds sterling
4.8 million including the release of the pounds sterling 10.0 million
deferred tax asset set up in 1995 (1995 : Powerhouse Retail Limited).
10 Dividends
1996 1995
pounds sterling 000,000
_________________________________________________________________________
Dividend in specie - distribution of the
National Grid Group plc 319.5 -
Special dividend paid of 50p per share 191.1 -
Interim paid of 6.125p per share
(1995 : 9.3p per 50p ordinary share) 23.4 17.7
Final proposed dividend of 12.375p per ordinary share
payable on 3 October 1996
(1995 : 20.45p per 50p ordinary share) 48.6 39.0
_________________________________________________________________________
582.6 56.7
===== ====
11 Earnings per ordinary share
The calculation of earnings per share is based on the profit for the
financial year after minority interests, namely pounds sterling 172.5
million (1995 : pounds sterling 126.2 million) and on 382,976,601 25p
ordinary shares (1995 : 201,965,970 50p ordinary shares) being the
weighted average number of ordinary shares in issue and ranking for
dividend during the year. The comparative figures for 1995 have been
restated to take account of the two-for-one share split in January 1996.
12 Tangible fixed assets
Non-
operational Vehicles
Land & Fixtures & & Mobile Customers'
Generation Distribution Buildings Equipment Plant Contributions Total
pounds sterling 000,000
___________________________________________________________________________________________________________________________
Cost
At 1 April 1995 9.4 1132.2 45.7 82.3 35.4 (199.2) 1105.8
Additions - 91.6 0.8 9.8 4.5 (13.3) 93.4
Disposals - (4.9) (1.5) (2.1) (3.5) - (12.0)
Acquisition of
subsidiary 2.2 - - - - - 2.2
Exchange differences 0.1 - - - - - 0.1
___________________________________________________________________________________________________________________________
At 31 March 1996 11.7 1218.9 45.0 90.0 36.4 (212.5) 1189.5
===== ===== ===== ===== ===== ===== =====
Depreciation
At 1 April 1995 6.9 396.6 9.0 58.0 21.6 (53.2) 438.9
Charge for the year 0.3 30.3 0.8 9.2 4.8 (5.8) 39.6
Disposals - (2.9) (0.5) (2.0) (3.3) - (8.7)
Acquisition of
subsidiary 2.1 - - - - - 2.1
Exchange differences 0.1 - - - - - 0.1
___________________________________________________________________________________________________________________________
At 31 March 1996 9.4 424.0 9.3 65.2 23.1 (59.0) 472.0
===== ===== ===== ===== ===== ===== =====
Net book amount
At 31 March 1996 2.3 794.9 35.7 24.8 13.3 (153.5) 717.5
===== ===== ===== ===== ===== ===== =====
At 31 March 1995 2.5 735.6 36.7 24.3 13.8 (146.0) 666.9
===== ===== ===== ===== ===== ===== =====
The Group's generation fixed assets are owned by its wholly-owned
subsidiary Midlands Power (UK) Ltd. With the exception of pounds
sterling 1.3 million of non-operational land and buildings (1995 : pounds
sterling 1.3 million) and pounds sterling 0.4 million of fixtures and
fittings (1995 : pounds sterling 0.3 million), all other tangible fixed
assets are owned by the Company.
The net book amount of non-operational land and buildings comprises:
1996 1995
pounds sterling 000,000
_________________________________________________________________________
Freehold 35.2 36.1
Long leasehold 0.5 0.6
Short leasehold - -
_________________________________________________________________________
35.7 36.7
==== ====
Included in fixed assets are assets in the course of construction at 31
March 1995 amounting to pounds sterling 77.0 million (1995 : pounds
sterling 66.8 million) and land with a cost of pounds sterling 11.0
million (1995 : pounds sterling 11.2 million) which is not depreciated.
13 Fixed asset investments
Group Associated National Grid Other
Undertaking Group plc Investments Total
pounds sterling 000,000
________________________________________________________________________________________
Cost or valuation
At 1 April 1995 19.7 71.7 79.8 171.2
Additions 10.4 15.8 14.9 41.1
Revaluation - 233.2 - 233.2
Disposals - (319.5) - (319.5)
Repayment of loans - - (0.3) (0.3)
Share of retained loss (3.0) - - (3.0)
Currency translation differences 0.4 - - 0.4
________________________________________________________________________________________
At 31 March 1996 27.5 1.2 94.4 123.1
===== ===== ===== =====
Amounts written off
At 1 April 1995 (15.4) - - (15.4)
Goodwill written off (4.6) - - (4.6)
Amounts written off (0.9) - (0.3) (1.2)
________________________________________________________________________________________
At 31 March 1996 (20.9) - (0.3) (21.2)
===== ===== ===== =====
Net book amount
At 31 March 1996 6.6 1.2 94.1 101.9
===== ===== ===== =====
At 31 March 1995 4.3 71.7 79.8 155.8
===== ===== ===== =====
Other Investments includes long-term repayable equity loan notes of
pounds sterling 50.1 million (1995 : pounds sterling 48.9 million) and
loans to associates of pounds sterling 4.0 million (1995 : pounds
sterling 3.0 million).
Company Subsidiary National Grid Other
Undertakings Group plc Investments Total
pounds sterling 000,000
_________________________________________________________________________
Cost or valuation
At 1 April 1995 89.3 71.7 0.1 161.1
Additions 13.1 15.8 - 28.9
Revaluation - 233.2 - 233.2
Disposals - (319.5) - (319.5)
_________________________________________________________________________
At 31 March 1996 102.4 1.2 0.1 103.7
===== ===== ===== =====
At 31 March 1995 89.3 71.7 0.1 161.1
===== ===== ===== =====
Investments in Subsidiary Undertakings includes loans of pounds sterling
2.3 million (1995 : pounds sterling 2.3 million). Additions in the year
represent further investments in subsidiaries to provide additional
working capital.
The principal Group undertakings are as follows:
Country of Percentage
Incorporation of Ordinary
Subsidiary undertakings: or Registration Shares Held Nature of Business
________________________________________________________________________________________________________________
Midlands Power International Ltd Great Britain 100% Investment
Midlands Power (UK) Ltd Great Britain 100% Electricity and heat
generation
Midlands Power (TPL) Ltd Great Britain 100% Investment
Midlands Power (Consultancy) Ltd Great Britain 100% Generation consultancy
Midlands Power (Europe) Ltd Great Britain 100% Investment
Midlands Power (HPL) Ltd Great Britain 100% Investment
Midlands Generation (Overseas) Ltd Great Britain 100% Generation
Midlands Power (Isle of Man) Ltd Isle of Man 100% Investment
Midlands Power International B.V. Netherlands 100% Investment
Midlands Gas Ltd Great Britain 100% Sale of gas
MEB Trading Insurance Ltd Isle of Man 100% Insurance
MEB Corporate Insurance Ltd Isle of Man 100% Insurance
Midlands Electricity (Share Scheme Trustees) Ltd Great Britain 100% Trustee for employee
share schemes
Midlands Power Ltd Great Britain 100% Investment
MEB (Contracting) Ltd Great Britain 100% Contracting
Midlands Energy Services Ltd Great Britain 100% Energy conservation
Midlands Electricity (Overseas) Ltd Great Britain 100% Investment
MEB Manx Ltd Isle of Man 100% Vehicle leasing
Construcciones y Representaciones Industriales S.A. Spain 88% Generation
________________________________________________________________________________________________________________
For commercial reasons MEB Trading Insurance Ltd and MEB Corporate
Insurance Ltd have a 31 October year end. Unaudited accounts are
prepared for the 12 months to 31 March for consolidation purposes.
Country of Percentage
Incorporation of Ordinary
Associated undertakings: or Registration Shares Held Nature of Business
________________________________________________________________________________________________________________
Distribution & Transmission Equipment Ltd Great Britain 40% Distribution
Systemes M3i Inc Canada 33% Computer software
Energias e Sistemas S.A. Portugal 35% Generation
Minicentrales Dos S.A. Spain 43% Generation
________________________________________________________________________________________________________________
The above undertakings operate principally in their country of
incorporation with the exception of Systemes M3i Inc which has an
international customer base.
Country of Percentage
Incorporation of Ordinary
Investments: or Registration Shares Held Nature of Business
________________________________________________________________________________________________________________
The National Grid Group plc Great Britain 0.04% Transmission
(formerly The National Grid Holding plc)
Teesside Power Ltd Great Britain 19.2% Generation
Teesside Power Holdings Ltd Great Britain 15.0% Investment
Humber Power Ltd Great Britain 3.2% Generation
________________________________________________________________________________________________________________
14 Stocks
Group Company
1996 1995 1996 1995
pounds sterling 000,000
____________________________________________________________________________________________________________
Raw materials and consumables 4.9 4.2 4.7 4.1
Work in progress 1.8 3.2 1.8 3.2
Finished goods and goods for resale 0.7 0.5 - -
____________________________________________________________________________________________________________
7.4 7.9 6.5 7.3
==== ==== ==== ====
15 Debtors
Group Company
1996 1995 1996 1995
pounds sterling 000,000
____________________________________________________________________________________________________________
Amounts falling due within one year:
Trade debtors 32.6 77.0 23.6 67.3
Unbilled consumption 116.3 97.4 116.3 97.4
Credit sale instalments not yet due 0.6 3.7 0.6 3.7
Amounts due from subsidiary undertakings - - 133.0 67.3
Amounts due from associated undertakings 0.5 0.2 - -
Other debtors 12.8 10.8 9.8 8.7
Prepayments and accrued income 71.1 43.4 29.4 26.5
Deferred taxation (Note 19) 4.0 16.7 4.5 17.3
Advance corporation tax recoverable 53.7 3.2 53.7 3.2
____________________________________________________________________________________________________________
291.6 252.4 370.9 291.4
Amounts falling due after more than one year:
Credit sale instalments not yet due 0.1 0.3 0.1 0.3
Other debtors 13.6 8.0 - -
Advance corporation tax recoverable 12.1 7.4 12.1 7.4
____________________________________________________________________________________________________________
317.4 268.1 383.1 299.1
===== ===== ===== =====
16 Short term deposits
Group Company
1996 1995 1996 1995
pounds sterling 000,000
____________________________________________________________________________________________________________
Money market deposits 31.7 40.7 - 12.0
===== ===== ===== =====
17 Creditors
Group Company
1996 1995 1996 1995
pounds sterling 000,000
____________________________________________________________________________________________________________
Amounts falling due within one year:
Bank overdraft 102.9 86.4 102.9 86.4
Short-term borrowings repayable within three months 210.1 33.4 210.1 33.4
Payments received on account 6.7 28.5 5.2 25.6
Trade creditors 124.8 102.8 113.6 96.2
Amounts due to subsidiary undertakings - - 3.0 2.3
Amounts due to associated undertakings - 3.6 - 3.6
Dividends payable 48.6 39.0 48.6 39.0
Corporation tax 7.6 13.9 2.6 12.2
Advance corporation tax payable 65.8 10.6 65.8 10.6
Other taxation and social security 4.4 4.8 4.2 4.6
Other creditors 31.4 25.0 5.7 4.4
Accruals and deferred income 65.6 64.3 52.7 44.3
____________________________________________________________________________________________________________
667.9 412.3 614.4 362.6
===== ===== ===== =====
Amounts falling due after more than one year:
Other creditors 44.4 38.1 23.8 20.0
Other loans 45.0 - 45.0 -
Accruals and deferred income - 30.9 - 30.9
____________________________________________________________________________________________________________
89.4 69.0 68.8 50.9
===== ===== ===== =====
Other creditors falling due after more than one year includes pounds
sterling 23.8 million (1995 : pounds sterling 20.0 million) payable to
Teesside Power Ltd in respect of consortium relief. The other loan of
pounds sterling 45.0 million is an unsecured ten-year loan from the
European Investment Bank at an interest rate of 7.4% per annum. pounds
sterling 10.6 million of the loan is repayable after between two and five
years with the balance of pounds sterling 34.4 million being repayable
after more than five years.
The Company has entered into guarantees in respect of the trading
obligations of a subsidiary undertaking.
18 Provisions for liabilities and charges
Group Company
1996 1995 1996 1995
pounds sterling 000,000
____________________________________________________________________________________________________________
At 1 April 41.6 33.9 37.2 31.2
Transferred (to)/from profit and loss account 0.9 12.9 - 10.2
Applied during the year (24.0) (5.2) (23.3) (4.2)
____________________________________________________________________________________________________________
At 31 March 18.5 41.6 13.9 37.2
===== ===== ===== =====
Group Company
1996 1995 1996 1995
Provisions consist of: pounds sterling 000,000
____________________________________________________________________________________________________________
Self-insured liabilities 13.3 14.1 10.2 11.6
Welfare and frozen holiday pay 0.1 1.0 0.1 1.0
Deferred maintenance 3.7 4.1 2.2 2.2
Powerhouse Retail 1.4 22.4 1.4 22.4
____________________________________________________________________________________________________________
18.5 41.6 13.9 37.2
===== ===== ===== =====
19 Deferred taxation
The total potential liability and asset of the Group and the Company for
deferred tax computed at the corporation tax rate of 33% is as follows:
Group Company
1996 1995 1996 1995
Potential liability pounds sterling 000,000
____________________________________________________________________________________________________________
Capital allowances in excess of depreciation (190.1) (174.2) (189.8) (173.9)
Timing differences re Powerhouse provision - 10.0 - 10.0
Other timing differences 23.8 30.8 26.1 33.2
____________________________________________________________________________________________________________
(166.3) (133.4) (163.7) (130.7)
===== ===== ===== =====
Asset
Timing differences re Powerhouse provision - 10.0 - 10.0
Other timing differences 4.0 6.7 4.5 7.3
____________________________________________________________________________________________________________
4.0 16.7 4.5 17.3
===== ===== ===== =====
20 Minority interests
1996 1995
pounds sterling 000,000
_________________________________________________________________________
At 1 April 1995 (0.9) (0.6)
Share of loss for the year 0.9 0.7
Issue of equity shares to minority shareholder - (1.0)
_________________________________________________________________________
At 31 March 1996 - (0.9)
===== =====
21 Called up share capital
Following approval at an Extraordinary General Meeting, on 5 January 1996
each 50p ordinary share in the Company was sub-divided into two 25p
ordinary shares. Consequently the number of shares brought forward and
share issues prior to that date are stated in terms of 25p shares to
reflect the sub-division.
1996 1995
pounds sterling 000,000
_________________________________________________________________________
Authorised:
600,000,000 ordinary shares of 25p each 150.0 150.0
===== =====
Allotted, called up and fully paid: Nominal
Ordinary shares of 25p each: Number of Value
Shares pounds sterling 000,000
_________________________________________________________________________
At 1 April 1995 381,481,480 95.4
Issued during the year 10,990,070 2.7
_________________________________________________________________________
At 31 March 1996 392,471,550 98.1
=========== =====
During the year ordinary shares were issued and allotted as follows:
Shares Consideration
(number) Price pounds sterling
____________________________________________________________________________________________________
The Midlands Electricity Executive Share Option Scheme 174,998 129p 225,747
28,132 198p 55,701
The Midlands Electricity Sharesave Scheme 10,781,032 87.5p 9,433,403
The Powerhouse Retail Ltd Sharesave Scheme 5,908 198.5p 11,727
____________________________________________________________________________________________________
10,990,070 9,726,578
========== =========
Employee share schemes:
(1) Free and matching offers
The issued share capital of the Company includes a total of 1,381,877
ordinary shares of the Company which were held in trust at 31 March 1996
on behalf of employees who are beneficially entitled to the shares under
the free and matching offer share scheme made to employees during the
year ended 31 March 1994 and the free share offer to be made to eligible
employees during 1996.
(2) Midlands Electricity Sharesave Scheme
As at 31 March 1996, options over 103,510 shares were outstanding under
the Midlands Electricity Sharesave Scheme with an exercise date of 1996
at a price of 87.5p. No other options were outstanding at that date.
22 Reserves and reconciliation of movements in equity shareholders' funds
Share Share Capital Profit Total
Capital Premium Redemption Revaluation and Loss
Account Reserve Reserve Account
pounds sterling 000,000
__________________________________________________________________________________________________________________
Group
Profit for the financial year - - - - 172.5 172.5
Dividends - - - - (582.6) (582.6)
Issue of share capital 2.7 7.0 - - - 9.7
Revaluation of holding in
National Grid Group plc - - - 233.2 - 233.2
Revaluation reserve realised
on distribution of National
Grid Group plc - - - (232.3) 232.3 -
Currency translation differences - - - - 0.4 0.4
Goodwill written off on
acquisitions - - - - (9.0) (9.0)
__________________________________________________________________________________________________________________
Net movement in equity
shareholders' funds 2.7 7.0 - 0.9 (186.4) (175.8)
Balance at 1 April 1995 95.4 4.7 10.6 - 565.9 676.6
__________________________________________________________________________________________________________________
Balance at 31 March 1996 98.1 11.7 10.6 0.9 379.5 500.8
===== ===== ===== ===== ===== =====
Company
Profit for the financial year - - - - 171.0 171.0
Dividends - - - - (582.6) (582.6)
Issue of share capital 2.7 7.0 - - - 9.7
Revaluation of holding in
National Grid Group plc - - - 233.2 - 233.2
Revaluation reserve realised
on distribution of National
Grid Group plc - - - (232.3) 232.3 -
__________________________________________________________________________________________________________________
Net movement in equity
shareholders' funds 2.7 7.0 - 0.9 (179.3) (168.7)
Balance at 1 April 1995 95.4 4.7 10.6 - 584.9 695.6
__________________________________________________________________________________________________________________
Balance at 31 March 1996 98.1 11.7 10.6 0.9 405.6 526.9
===== ===== ===== ===== ===== =====
As permitted by Section 230 of the Companies Act 1985, the Holding
Company's profit and loss account has not been included in these
financial statements. The profit for the financial year dealt with in
the accounts of the Company was pounds sterling 171.0 million (1995 :
pounds sterling 130.8 million). The Company's profit and loss account
was approved by the Board on 6 June 1996.
The Group's share of post-acquisition reserves of associated undertakings
was a deficit of pounds sterling 4.0 million (1995 : pounds sterling 2.8
million). Cumulative goodwill charged against reserves was pounds
sterling 14.6 million (1995 : pounds sterling 5.6 million).
23 Cash flow statement
(a) Reconciliation of operating profit to net cash inflow from operating
activities:
1996 1995
pounds sterling 000,000
________________________________________________________________
Operating profit 78.1 196.0
Loss/(profit) on disposal of fixed assets 2.1 (0.4)
Depreciation charges 39.6 38.1
Amounts written off investments 0.3 -
Decrease in stocks 0.5 2.4
Increase in debtors (10.0) (27.3)
(Increase)/decrease in amounts due from
associated undertakings (1.6) 7.1
Decrease in payments received on account (21.8) (25.8)
Increase/(decrease) in creditors 11.5 (6.5)
Net decrease in provisions (23.1) (14.7)
________________________________________________________________
Net cash inflow from operating activities 75.6 168.9
===== =====
(b) Analysis of changes in cash and cash equivalents during the year:
1996 1995
pounds sterling 000,000
________________________________________________________________
At 1 April (18.1) 119.9
Net cash outflow (162.5) (138.0)
________________________________________________________________
At 31 March (180.6) (18.1)
===== =====
(c) Analysis of cash and cash equivalents:
1996 1995
Change Change
Balance in Year Balance in Year
pounds sterling 000,000
_________________________________________________________________________
Cash at bank and in hand 100.7 39.7 61.0 29.2
Short-term investments (Note 16) 31.7 (9.0) 40.7 (121.4)
Bank overdraft (Note 17) (102.9) (16.5) (86.4) (49.1)
Short-term borrowings repayable
within three months (Note 17) (210.1) (176.7) (33.4) 3.3
_________________________________________________________________________
(180.6) (162.5) (18.1) (138.0)
===== ===== ===== =====
(d) Analysis of changes in financing during the year:
Issue of Other
Shares Loans Total
pounds sterling 000,000
_________________________________________________________________________
Share capital 2.7 - 2.7
Share premium account 7.0 - 7.0
Other loans - 45.0 45.0
_________________________________________________________________________
9.7 45.0 54.7
===== ===== =====
24 Pension commitments
Most of the Group's employees are members of the Electricity Supply
Pension Scheme (ESPS) which provides pension and other related benefits
based on final pensionable pay. The Midlands Electricity Pension Scheme
(MEPS) was established on 1 May 1992 for new employees only and provides
both money purchase benefits and benefits related to final pensionable
pay. The assets of both schemes are held in separate trustee-
administered funds.
An actuarial valuation of both schemes is carried out every three years
by firms of professionally qualified actuaries. These determine the
funding position of the schemes and the required contribution rate. The
most recent valuations of both schemes were carried out at 31 March 1995.
The Company has taken separate advice from the professional actuaries in
order to determine the pension cost to be included in the accounts under
Statement of Standard Accounting Practice 24.
The review of the assets and liabilities of the ESPS for accounting
purposes was undertaken by Bacon & Woodrow, Consulting Actuaries, at the
valuation date using the projected unit credit method. The principal
actuarial assumptions which have the most significant effect on the
results of the review are those relating to the rate of investment return
and rates of increase in salaries and pensions. It was assumed that the
annual rate of investment return (inclusive of 5% growth in dividends)
will be 2.5% higher than salary increases (exclusive of merit awards) and
4.5% higher than the increase in pensions.
After allowing for benefit improvements granted as a result of the
actuarial valuation and the provision made from surplus to cover
contingencies, the actuarial value of the Group's section of the scheme
as at 31 March 1995 represented 111% of the actuarial value of the
accrued benefits. The accrued benefits include all benefits for
pensioners and other former members as well as benefits based on service
completed to date for active members, allowing for future salary
increases.
The total market value of the Company's and its subsidiaries' group of
the ESPS was pounds sterling 705.9 million at 31 March 1995 and of the
MEPS was pounds sterling 1.6 million at the same date.
The total pension credit to the Group for the year in relation to both
the ESPS and the MEPS was pounds sterling 25.9 million (1995 : charge of
pounds sterling 26.8 million), of which pounds sterling 26.0 million was
in respect of early retirements (1995 : charge of pounds sterling 10.1
million and charge of pounds sterling 0.7 million in respect of ex gratia
pensions).
25 Lease obligations
The Group and Company has the following annual commitments under
operating leases for land and buildings which expire:
Group Company
1996 1995 1996 1995
pounds sterling 000,000
_________________________________________________________________________
In the second to fifth year inclusive 0.1 0.1 - -
In more than five years - 0.2 - 0.2
_________________________________________________________________________
0.1 0.3 - 0.2
==== ==== ==== ====
26 Capital commitments
Group Company
1996 1995 1996 1995
pounds sterling 000,000
_________________________________________________________________________
Capital expenditure contracted
but not provided 14.1 23.1 14.1 23.0
==== ==== ==== ====
Capital expenditure authorised
but not contracted 70.7 70.0 70.6 70.0
==== ==== ==== ====
27 Post balance sheet event
Details of post balance sheet events are set out in the Directors'
Report.
GROUP FINANCIAL HISTORY
Group historical cost profit and loss accounts
Year ended 31 March
1992 1993 1994 1995 1996
pounds sterling 000,000
Turnover 1454.1 1536.9 1415.5 1456.9 1335.8
Cost of sales (1038.2) (1091.6) (983.4) (1024.3) (1021.3)
______________________________________________________________________________________________________
Gross profit 415.9 445.3 432.1 432.6 314.5
Net operating expenses (280.0) (291.3) (264.3) (236.6) (236.4)
______________________________________________________________________________________________________
Operating profit 135.9 154.0 167.8 196.0 78.1
Income from fixed asset investments 14.4 15.2 23.5 26.0 139.1
Net profit/(loss) attributable to
associated undertakings - (0.5) 0.3 (8.5) (2.6)
Provision for loss on operations
of associated undertaking
to be discontinued - - - (40.0) -
Proceeds from sale of First Hydro Limited - - - - 56.3
______________________________________________________________________________________________________
Profit on ordinary activities
before interest 150.3 168.7 191.6 173.5 270.9
Net interest (payable)/receivable (8.2) (1.6) 3.8 4.5 (4.3)
______________________________________________________________________________________________________
Profit on ordinary activities
before taxation 142.1 167.1 195.4 178.0 266.6
Tax on profit on ordinary activities (39.4) (50.0) (58.0) (52.5) (95.0)
______________________________________________________________________________________________________
Profit on ordinary activities
after taxation 102.7 117.1 137.4 125.5 171.6
Minority interests - (0.2) (0.2) 0.7 0.9
______________________________________________________________________________________________________
Profit for the financial year 102.7 116.9 137.2 126.2 172.5
Dividends (36.1) (41.9) (49.0) (56.7) (582.6)
______________________________________________________________________________________________________
Profit retained 66.6 75.0 88.2 69.5 (410.1)
===== ===== ===== ===== =====
Group historical cost balance sheets
At ended 31 March
1992 1993 1994 1995 1996
pounds sterling 000,000
______________________________________________________________________________________________________
Fixed assets
Tangible assets 534.2 569.7 608.5 666.9 717.5
Investments 71.9 109.7 124.2 155.8 101.9
______________________________________________________________________________________________________
606.1 679.4 732.7 822.7 819.4
===== ===== ===== ===== =====
Current assets
Stocks 20.3 15.6 10.3 7.9 7.4
Debtors 249.1 291.7 266.0 268.1 317.4
Short term deposits 71.2 142.6 212.4 40.7 31.7
Cash at bank and in hand 7.9 30.7 31.8 61.0 100.7
______________________________________________________________________________________________________
348.5 480.6 520.5 377.7 457.2
Creditors (Amounts falling
due within one year) (236.6) (433.8) (417.0) (412.3) (667.9)
______________________________________________________________________________________________________
Net current assets/(liabilities) 111.9 46.8 103.5 (34.6) (210.7)
===== ===== ===== ===== =====
Total assets less current liabilities 718.0 726.2 836.2 788.1 608.7
Creditors (Amounts falling due after
more than one year) (85.3) (12.5) (45.3) (69.0) (89.4)
Provisions for liabilities and charges (34.4) (41.4) (33.9) (41.6) (18.5)
Minority interests (0.2) (0.4) (0.6) (0.9) -
______________________________________________________________________________________________________
Net assets 598.1 671.9 756.4 676.6 500.8
===== ===== ===== ===== =====
Capital and reserves
Called up share capital 104.7 104.8 105.8 95.4 98.1
Share premium account - 0.1 4.2 4.7 11.7
Capital redemption reserve - - - 10.6 10.6
Revaluation reserve - - - - 0.9
Profit and loss account 493.4 567.0 646.4 565.9 379.5
______________________________________________________________________________________________________
Equity shareholders' funds 598.1 671.9 756.4 676.6 500.8
===== ===== ===== ===== =====