EXHIBIT 99.1
NOTE: This report is an unchanged copy of a
previously issued Arthur Andersen, LLP Accountants'
report. Obtaining a consent from Arthur Andersen,
LLP is not possible, and this report has not been
reissued by Arthur Andersen, LLP. We are filing this
copy of the previously issued report as permitted
by Regulation S-X 210.2-02(e).
WESTERN POWER DISTRIBUTION HOLDINGS LIMITED
AND SUBSIDIARY UNDERTAKINGS
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2002
Registered Number: 4267536
[WESTERN POWER DISTRIBUTION LOGO]
CONTENTS
Page
DIRECTORS' REPORT 1
STATEMENT OF DIRECTORS' RESPONSIBILITIES 8
INDEPENDENT AUDITORS' REPORT 9
FINANCIAL STATEMENTS:
Group profit and loss account 10
Balance sheets 11
Statement of total recognised gains and losses 12
Reconciliation of movements in equity shareholders' funds 12
Group statement of cash flows 13
Notes to the financial statements 14
DIRECTORS' REPORT
For the year ended 31 March 2002
The directors present their annual report on the affairs of Western Power
Distribution Holdings Limited (the "Company") and its subsidiary undertakings
(the "Group" or "WPD"), together with the financial statements and auditors'
report, for the year ended 31 March 2002.
The Company was incorporated as Alnery No. 2177 Limited on 9 August 2001, a
private limited company. On 7 September 2001, it changed its name to WPD 1953
Limited and on 27 March 2002 to Western Power Distribution Holdings Limited. On
11 September 2001, the Company became the parent company of the WPD Holdings UK
group through a share for share exchange with WPD Holdings UK's owners. The
financial information for the current period has been presented as if WPD
Holdings UK had been owned by the Company throughout the current and comparative
accounting period in accordance with the merger principles of group
reconstructions.
OWNERSHIP
The Company is owned 49% indirectly by Mirant Corporation ("Mirant"), a global
competitive energy company based in Atlanta, Georgia, United States of America
("US") and 51% indirectly by PPL Corporation ("PPL"), an electricity utility of
Allentown, Pennsylvania, US. Both parties share operational and management
control equally. The Company is the UK parent of the Group whose principal
operating activity is conducted by Western Power Distribution (South West) plc
("WPD South West") and Western Power Distribution (South Wales) plc ("WPD South
Wales").
PRINCIPAL ACTIVITIES
The Group's principal activity is the distribution of electricity. Distribution
involves the delivery of electricity across the Group's distribution network
within its authorised areas of South West England and South Wales.
The Group also has ancillary business activities, including electricity
generation and telecommunications. It owns generating assets with 11 megawatts
("MW") of capacity used to back up the distribution network as well as minority
investments in windfarms. The Group telecommunications subsidiary, Surf Telecoms
Limited, is developing an income stream from the rental of fibre optic cables
primarily attached to the Group's overhead electricity distribution network.
BUSINESS REVIEW
WPD met the regulatory requirement that all distribution businesses must be
separate from their local supply company by April 2002. Under the new licence
conditions introduced by the Utilities Act 2000, WPD decided to make official
name changes. Therefore, from 1 August 2001, South Western Electricity plc
became Western Power Distribution (South West) plc and South Wales Electricity
plc became Western Power Distribution (South Wales) plc.
The final outcome of the distribution price control review was announced in
December 1999. The price control is effective for a five year period from 1
April 2000. WPD South West and WPD South Wales were required to reduce their
regulated prices by 20% and 26%, respectively, from 1 April 2000, with a price
change of 3% below the retail price index for each of the following four years.
In response, management of WPD South West formulated a plan to maximise
efficiency and customer service as a focused distribution company. The
implementation of the plan has necessitated a reduction in overheads including a
reduction in staffing levels in WPD South West. The reductions focused on
administrative and corporate functions, with minimal impact on field staff,
ensuring customer service is not affected. Further cost savings have been
achieved through the sharing of systems and facilities by the two distribution
businesses now owned by the Group. Further savings in WPD South Wales have been
achieved through the introduction of an engineering team structure based upon
that in WPD South West.
1
DIRECTORS' REPORT (CONTINUED)
For the year ended 31 March 2002
BUSINESS REVIEW (CONTINUED)
FOOT AND MOUTH EPIDEMIC
The foot and mouth epidemic which devastated farming, tourism and rural
businesses across much of the UK also posed a number of operational problems for
WPD during the year. Stringent restrictions on access to land imposed by council
authorities and MAFF, the agricultural ministry, had a significant impact on our
operations and most work on our maintenance and refurbishment of rural networks
had to be put on hold for at least 50% of the year. During the foot and mouth
outbreak, work activity was concentrated on underground cable and roadside
overhead work in urban areas, towns and villages.
BUSINESS INTEGRATION
WPD South Wales was part of the Hyder Limited group ("Hyder"). Hyder was
acquired in September 2000 by an affiliate of the WPD Group. WPD South Wales was
transferred from Hyder to the WPD Group on 16 March 2001.
The main focus for the year was the completion of the integration of WPD South
Wales into the Group's existing operation in the South West of England.
During the year, the restructuring of the electricity business in South Wales
was completed to exactly mirror the team based engineering structure that
already successfully operates in WPD South West. A Network Services Manager was
appointed for South Wales along with a team of six Distribution Managers each of
whom is responsible for an area and a group of geographically based teams. All
network services staff in Wales have now been allocated to one of these teams.
Joint goals and targets were established for the Group, which allow everyone to
contribute to the success of the organisation. Every member of staff was sent a
letter outlining the 'top ten' priorities for the year. In both companies, the
focus centred on customer service, delivering exceptional network performance
and being financially prudent.
To deliver the improved network performance in South Wales, a number of
successful initiatives from WPD South West were replicated and implemented
during 2000/01. Two of the key programmes continued during 2001/02 were:
Tree trimming
A managed tree-trimming programme was introduced into South Wales. WPD
carried out a competitive tendering process across the whole of the South
West and South Wales to ensure we maximised value for money.
Tree maintenance is essential for protecting the reliability of power
supplies to customers. With the easing of foot and mouth restrictions, an
extensive programme of tree trimming began across South and West Wales in
the latter part of 2001. Over (pound)6m was spent during the year. This
programme will continue for some time.
WPD uses suitably qualified contractors who have obtained all the British
Standard certificates of competence. In addition, we have independent
qualified arborists to check the contractors' work and ensure that high
standards are maintained.
2
DIRECTORS' REPORT (CONTINUED)
For the year ended 31 March 2002
BUSINESS REVIEW (CONTINUED)
BUSINESS INTEGRATION (CONTINUED)
ENMAC Network Management System
ENMAC ensures that the Group has network control data at its fingertips,
and can automatically update the call centre, relay electronic messages to
customers, and increase flexibility for control centre staff.
We installed the latest version of the ENMAC network management system into
South Wales to bring it into line with the system in use in WPD South West.
This allows the control room to monitor all 250 primary and grid
substations in South Wales, which are fully integrated with a SCADA (System
Control and Data Acquisition) system, also known as telecontrol. This
allows equipment at substations to be closely monitored and remotely
operated. The system also incorporates a trouble-call system that monitors
the network and any "no-supply" calls from customers, and then matches the
two together.
As technology continues to improve, it means we are well placed to provide
a better service to our customers. New, improved versions of ENMAC will be
introduced during the latter part of 2002.
LIVE WORKING
Additional "Hot Gloving" vehicles were also introduced to allow more live line
working. This reduces interruptions to the supply.
CUSTOMER SERVICE
During the year, the WPD Group was awarded the Charter Mark for outstanding
customer service provision.
The award is the Government's top seal of approval for service excellence and
followed a rigorous and detailed assessment of WPD's operations as well as
interviews with the Group's main customers.
In particular, Charter Mark assessors singled out "target 60", a unique WPD
initiative that goes beyond the regulatory requirement, empowering staff to
ensure the maximum number of customer supplies is restored within one hour of a
fault occurring.
Streamlining of call centres was also completed and all call centre operations
in South Wales are now outsourced to an external company. This ensures that we
improve the quality and speed of our response to our customers. The Company we
use has already provided call centre services to WPD South West for a number of
years and has recently won a top European award and been given the title of
"best multi service call centre".
The overall industry regulator is the Gas and Electricity Markets Authority
(known as "Ofgem"). A new watchdog group was established during the year, the
Gas and Electricity Consumer Council (known as "energywatch"). energywatch
replaced the South West and South Wales Consumers' Committees, which had been
active for nearly 11 years. The new arrangements were introduced as part of the
Governments' drive to protect customer interests via the Utilities Act 2000.
energywatch took over the role of complaint handling and customer
representation. The Group has worked hard with the new regulatory body to ensure
that we establish an effective and positive working relationship. During the
year, customer complaints to energywatch for WPD South West and WPD South Wales
fell by 86% and 100%, respectively, from 7 and 49 in the twelve months to March
2001 compared to 1 and nil in the twelve months up to March 2002. WPD maintained
its position as number one for fewest complaints to the regulator.
3
DIRECTORS' REPORT (CONTINUED)
For the year ended 31 March 2002
BUSINESS REVIEW (CONTINUED)
CAPITAL INVESTMENT
Investment during 2001/02 was (pound)146.3m across the entire region and
included the replacement of overhead lines, replacement of switchgear and the
introduction of new technology. Of this total investment, (pound)58.2m was in
South Wales with the remainder in the South West.
A number of significant engineering projects were also tackled during the year:
- - a major engineering project to improve and reinforce the quality of
supplies to remote areas on Dartmoor was completed. The scheme involved
bringing in a new main line underground supply to Princetown, famous for
the forbidding Dartmoor Prison.
- - we also installed a new ethylene propylene rubber cable ("EPR") along the
riverbed of the River Yealm in Devon to replace the existing submarine
cable. We used specialist divers to ensure that we met the European Union
Directive for clean water and caused minimum disruption to the riverbed.
- - one of the year's most ambitious projects was to replace an intricate
system of exposed 33kV switchgear at Woodcote substation near Axminster,
Devon with an advanced computerised indoor system; the first of its kind
and a radical departure from traditional methods. Load growth in the area
had taken the existing switchgear beyond its fault rating. Replacing the
exposed and ageing switchgear with a modern system under cover has not only
reduced the risk of a fault occurring but has made it easier to operate and
maintain as well.
- - booming residential development has also necessitated the commencement of a
(pound)3.9m project to build a new 132/33kV substation from scratch at
Portishead on the Bristol Channel. The project is complex and involves the
transfer of existing circuits to a nearby substation and the relocation of
two 132kV transformers to a new greenfield site. The work will be completed
during summer 2002.
PERFORMANCE
Through a combination of continued investment and close monitoring of goals and
targets, WPD strives to improve network performance. Early plans implemented in
South Wales have paid off
Network reliability South Wales
Minutes lost per customer 2000/01 123.3
Minutes lost per customer 2001/02 90.6
Improvement in performance 27%
Interruptions per 100 customers 2000/01 158.2
Interruptions per 100 customers 2001/02 128.5
Improvement in performance 19%
In WPD South West, minutes lost per customer again improved to 86.1 minutes lost
per customer (86.5 minutes in 2000/01), but interruptions per 100 customers
increased to 107.2 (70.0 in 2000/01). This increase was the result of a high
incidence of lightning. The WPD Group has an on-line lightning location display
system which provides information on all the lightning strikes to ground. This
indicated an increase in lightning activity in the South West of almost 50%
during the year.
4
DIRECTORS' REPORT (CONTINUED)
For the year ended 31 March 2002
PERFORMANCE (CONTINUED)
More than 92.6% of customers in the South West and 94.2% of customers in South
Wales were restored in less than three hours, beating the Ofgem target of 85%.
More than 71.1% and 72.3% of customers in the South West and South Wales,
respectively, were in fact restored within one hour of a fault occurring.
Among the initiatives identified for the coming year are:
- - installation of more automatic switchgear in rural areas
- - increasing the number of protective devices on the network thus reducing
the number of customers affected by a fault
- - a continued drive on line refurbishment and tree trimming.
WPD GROUP AND THE ENVIRONMENT
The WPD Group has developed systems to capture data on greenhouse emissions
using the guidelines issued by the UK Government's Department of Environment,
Food and Rural Affairs, and prepared a report. It has updated its Environmental
Policy to reflect its current areas of operation.
The WPD Group has had no prosecutions or notice of intended prosecution for any
environmental matter during the reporting year.
REGULATORY ISSUES
One of the more significant priorities for the year was to monitor and aim to
influence Ofgem's Information and Incentive Project ("IIP"). This initiative,
which commenced in April 2002, can lead to an increase or reduction in revenue
of up to two per cent depending on performance. The incentives for distribution
companies focus on three main areas:
- - the number of interruptions that customers experience
- - the duration of those interruptions
- - the speed and quality of telephone response from the distribution business
to the customer.
As part of the implementation of the Utilities Act, a new licensing scheme came
into force in October 2001. WPD South West and WPD South Wales now hold
Electricity Distribution Licences.
RESULTS AND DIVIDENDS
The Group profit after taxation for the year ended 31 March 2002 was(pound)58.3m
(2001:(pound)64.3m).
Dividends of (pound)140.7m have been declared during the year. No dividends were
declared during the year ended 31 March 2001.
PAYMENT OF CREDITORS
The Group's policy in respect of its suppliers (other than those providing
electricity utility supplies and services) is to require suppliers to accept our
terms which are displayed on our official orders unless alternative terms of
mutual benefit can be agreed. The average length of time for the payment of
creditors during 2002 was 21 days.
CHARITABLE AND POLITICAL DONATIONS
During the year ended 31 March 2002, donations of (pound)131,000 were made by
the Group to community organisations of which (pound)52,000 was donated to
charities. No contributions were made for political purposes. In addition, WPD
South West established a charitable foundation in 1996 with a (pound)1.0m
donation. In May 2001, Hyder Limited, which is under the same ultimate ownership
as the Group, donated a further (pound)1.0m to the foundation. The foundation
made donations of (pound)78,000 in 2002.
5
DIRECTORS' REPORT (CONTINUED)
For the year ended 31 March 2002
EQUAL OPPORTUNITIES
The Group is committed to equality of opportunity in employment and this is
reflected in its equal opportunities policy and employment practices. Employees
are selected, treated, and promoted according to their abilities and merits and
to the requirements of the job. Applications for employment by people with
disabilities are fully considered, and in the event of members of staff
suffering disabilities, every effort is made to ensure that their employment
with the Group continues with redeployment or retraining arranged as
appropriate. It is the policy of the Group that the training, career development
and promotion of disabled persons should, as far as possible, be identical to
that of other employees.
EMPLOYEE CONSULTATION
The Group places considerable value on the involvement of its employees in its
affairs. Staff are kept informed of the Group's aims, objectives, performance
and plans, and their effect on them as employees through newsletters, regular
team briefings and other meetings, as well as through the Group's in-house
journal. Formal meetings are held regularly between senior managers and
representatives of staff and their unions to discuss matters of common interest.
REGULATORY FINANCIAL STATEMENTS
As a condition of their Electricity Distribution Licences, WPD South West and
WPD South Wales are required to prepare and publish separate financial
statements for their distribution businesses for each year ending 31 March.
These are expected to be available after 30 September 2002 from the Company's
registered office as shown below.
DIRECTORS AND THEIR INTERESTS
The directors who served during the year were as follows:
Appointed Resigned
--------- --------
RA Symons, Chief Executive 21 December 2001 -
ME Fletcher, Resources and External Affairs Director 21 December 2001 -
DCS Oosthuizen, Finance Director 6 September 2001 -
RW Burke 21 December 2001 -
PA Farr, alternate director to RL Petersen 18 January 2002 -
DM Kleppinger, alternate director to RL Klingensmith 21 December 2001 -
RF Owen 21 December 2001 -
BS Rush 21 December 2001 27 March 2002
RL Peterson 21 December 2001 -
WP Bowers, alternate director to RA Symons 21 December 2001 -
JW Holden, alternate director to RF Owen 21 December 2001 -
GE Klappa, alternate director to ME Fletcher 21 December 2001 -
RL Klingensmith 21 December 2001 -
SA Underwood 6 September 2001 20 December 2001
Alnery Incorporations No. 1 Limited 9 August 2001 6 September 2001
Alnery Incorporations No. 2 Limited 9 August 2001 6 September 2001
Subsequent to the year end, on 18 April 2002, WP Bowers and GE Klappa resigned
as directors, CJ Edwards was appointed as an alternate director to ME Fletcher,
FD Kuester was appointed as a director, and RJ Pershing was appointed as an
alternate director to FD Kuester.
During and at the end of the financial year, no director was materially
interested in any contract of significance in relation to the Group's business
other than service contracts. At 31 March 2002, no director had a beneficial
interest in any of the Group companies.
6
DIRECTORS' REPORT (CONTINUED)
For the year ended 31 March 2002
SUBSEQUENT EVENT
Subsequent to the year end, the Group effectively restructured its interest rate
swaps and certain of its cross currency swaps. Further detail is given in
note 29.
AUDITORS
Arthur Andersen will not be seeking re-appointment as auditors for the
forthcoming year. A resolution to appoint a successor will be proposed at the
Annual General Meeting.
By Order of the Board,
RA Symons
Chief Executive
WESTERN POWER DISTRIBUTION HOLDINGS LIMITED
Avonbank
Feeder Road
Bristol BS2 0TB
31 May 2002
7
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
Company and Group and of the profit or loss of the Group for that year. In
preparing those financial statements, the directors are required to:
- - select suitable accounting policies and then apply them consistently;
- - make judgments and estimates that are reasonable and prudent;
- - state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
- - prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The directors confirm that the financial statements comply with the above
requirements.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and Group and enable them to ensure that the financial statements comply
with the Companies Act 1985. They are also responsible for safeguarding the
assets of the Company and Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
8
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF WESTERN POWER DISTRIBUTION HOLDINGS LIMITED
We have audited the financial statements of Western Power Distribution Holdings
Limited for the year ended 31 March 2002 which comprise the Profit and loss
account, Balance sheets, Cash flow statement, Statement of total recognised
gains and losses and the related notes numbered 1 to 30. These financial
statements have been prepared under the accounting policies set out therein.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The directors' responsibilities for preparing the annual report and the
financial statements in accordance with applicable law and United Kingdom
Accounting Standards are set out in the Statement of directors'
responsibilities. Our responsibility is to audit the financial statements in
accordance with relevant legal and regulatory requirements and United Kingdom
Auditing Standards.
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies Act
1985. We also report to you if, in our opinion, the Directors' report is not
consistent with the financial statements, if the Company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' remuneration and transactions with the Company and other members of
the Group is not disclosed.
We read the Directors' report and consider the implications for our report if we
become aware of any apparent misstatements within it.
BASIS OF OPINION
We conducted our audit in accordance with United Kingdom 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
judgments made by the directors in the preparation of the financial statements
and of whether the accounting policies are appropriate to the circumstances of
the Company and of the Group, 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 of the Group at 31 March 2002 and of the Group's
profit for the year then ended and have been properly prepared in accordance
with the Companies Act 1985.
ARTHUR ANDERSEN
Chartered Accountants and Registered Auditors
1 The Square
Temple Quay
Bristol BS1 6DG
31 May 2002
9
GROUP PROFIT AND LOSS ACCOUNT
For the year ended 31 March 2002
2002 2001
(As restated)
NOTE (POUND)m (pound)m
- ----------------------------------------------------------------------------------------------------------
TURNOVER - CONTINUING OPERATIONS 2 399.2 243.6
Operating expenses 3 (220.2) (147.8)
Other operating income -
gain on disposal of contract for differences 2 29.4 -
- ----------------------------------------------------------------------------------------------------------
OPERATING PROFIT - CONTINUING OPERATIONS 208.4 95.8
Income from fixed asset investments and associated
undertakings 2 7.7 2.9
Profit on sale of properties in continuing operations 8.2 -
Gain on liquidation of subsidiaries 2 - 23.8
Deferred contingent consideration on disposal of subsidiaries 2 - 15.5
Deferred contingent gain on disposal of the electricity supply
activity - 2.1
Amounts written off investments 2 (53.1) -
- ----------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE FINANCE CHARGES AND TAX 2 171.2 140.1
Finance charges (net) 6 (93.2) (49.4)
- ----------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 78.0 90.7
Tax on profit on ordinary activities 7 (19.7) (26.4)
- ----------------------------------------------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES AFTER TAX, BEING PROFIT FOR
THE FINANCIAL YEAR 58.3 64.3
Dividends on equity shares 8 (140.7) -
- ----------------------------------------------------------------------------------------------------------
TRANSFER (FROM)/TO RESERVES 22 (82.4) 64.3
- ----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this Group profit and loss
account.
10
BALANCE SHEETS
31 March 2002
GROUP COMPANY
2002 2001 2002
(As restated)
NOTE (POUND)m (POUND)m (POUND)m
- -----------------------------------------------------------------------------------------------------------
FIXED ASSETS
Intangible assets - goodwill 11 136.8 146.6 -
Tangible assets 12 1,822.1 1,793.2 -
Investments 13 1.9 55.2 353.2
- -----------------------------------------------------------------------------------------------------------
1,960.8 1,995.0 353.2
CURRENT ASSETS
Stocks 5.2 9.3 -
Debtors 16 168.9 159.6 -
Investments 17 115.0 574.9 -
Cash at bank 9.2 4.4 -
- -----------------------------------------------------------------------------------------------------------
298.3 748.2 -
CREDITORS
Amounts falling due within one year 18 (495.2) (852.6) -
- -----------------------------------------------------------------------------------------------------------
NET CURRENT LIABILITIES (196.9) (104.4) -
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 1,763.9 1,890.6 353.2
CREDITORS
Amounts falling due after more than one year 18 (1,029.3) (1,073.5) -
PROVISIONS FOR LIABILITIES AND CHARGES 20 (218.0) (218.1) -
- -----------------------------------------------------------------------------------------------------------
NET ASSETS 2 516.6 599.0 353.2
- -----------------------------------------------------------------------------------------------------------
CAPITAL AND RESERVES
Called-up share capital 21 24.9 24.9 24.9
Share premium account 22 328.3 328.3 328.3
Other reserves 22 142.3 142.3 -
Profit and loss account 22 21.1 103.5 -
- -----------------------------------------------------------------------------------------------------------
EQUITY SHAREHOLDERS' FUNDS 516.6 599.0 353.2
- -----------------------------------------------------------------------------------------------------------
The financial statements on pages 10 to 38 were approved by the Board of
Directors on 31 May 2002 and signed on its behalf by:
R A Symons D C S Oosthuizen
Chief Executive Finance Director
The accompanying notes are an integral part of these balance sheets.
11
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 31 March 2002
2002 2001
(As restated)
(POUND)m (pound)m
- -----------------------------------------------------------------------------------------------------------
Profit for the financial year 58.3 64.3
Prior year adjustment for implementation of FRS19 Deferred Tax (Note 1) (78.9)
- --------------------------------------------------------------------------------------
Total gains and losses recognised since last financial statements (20.6)
- --------------------------------------------------------------------------------------
RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS
For the year ended 31 March 2002
2002 2001
(As restated)
(POUND)m (pound)m
- -----------------------------------------------------------------------------------------------------------
Profit for the financial year 58.3 64.3
Dividends (140.7) -
- -----------------------------------------------------------------------------------------------------------
Net (reduction)/addition in shareholders' funds (82.4) 64.3
Opening equity shareholders' funds
(as adjusted for implementation of FRS19 Deferred Tax - Note 1) 599.0 534.7
- -----------------------------------------------------------------------------------------------------------
Closing equity shareholders' funds 516.6 599.0
- -----------------------------------------------------------------------------------------------------------
The opening shareholders' funds at 1 April 2001 were originally (pound)677.9m
before a prior year adjustment of (pound)78.9m (Note 1).
12
GROUP STATEMENT OF CASH FLOWS
For the year ended 31 March 2002
2002 2001
NOTE (POUND)m (POUND)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------
NET CASH INFLOW FROM OPERATING ACTIVITIES 23 245.8 122.9
RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE
Interest received 6.4 6.8
Interest paid (103.2) (60.7)
Dividends received and other investment income 7.9 4.4
------ -----
Net cash outflow from returns on investments
and servicing of finance (88.9) (49.5)
UK CORPORATION TAX PAID (18.6) (17.0)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (144.9) (99.3)
Consumers' contributions received 26.7 14.8
Sale of tangible fixed assets 12.7 0.2
Sale of fixed asset investments - 163.8
Net repayment/(issue) of loan to affiliate 347.0 (439.6)
Loan to WPD South Wales (prior to acquisition) - (153.7)
------ -----
Net cash inflow/(outflow) from capital expenditure
and financial investment 241.5 (513.8)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertaking (3.0) 301.8
Net cash acquired with subsidiary undertaking 0.1 (1.1)
Consideration received in respect of disposals
made in previous years 15.5 -
------ -----
Net cash inflow from acquisitions and disposals 12.6 300.7
EQUITY DIVIDENDS PAID (140.7) -
------ ------
CASH INFLOW/(OUTFLOW) BEFORE USE OF LIQUID RESOURCES
AND FINANCING 251.7 (156.7)
MANAGEMENT OF LIQUID RESOURCES
Net decrease/(increase) in deposits 125.1 (93.6)
Net (purchase)/sale of government securities (0.2) 2.5
------ -----
Net cash inflow/(outflow) from management of
liquid resources 124.9 (91.1)
FINANCING
Net (repayment)/receipt of parent company loans (150.0) 150.0
Net (decrease)/increase in short-term loans (94.0) 101.9
Loan repayments (127.2) -
Net repayment of other amounts borrowed (0.6) (1.6)
------ -----
Net cash (outflow)/inflow from financing (371.8) 250.3
- -----------------------------------------------------------------------------------------------------------
INCREASE IN CASH IN THE YEAR 25 4.8 2.5
- -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this Group statement of cash
flows.
13
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
1. ACCOUNTING POLICIES
The principal accounting policies are summarised below. They have all been
applied consistently throughout the year and the preceding year with the
exception of the adoption of the policy for deferred tax as detailed in the next
paragraph.
RESTATEMENT OF PRIOR YEARS
Following the introduction of Financial Reporting Statement 19 ("FRS19"), the
Group now makes full provision for deferred tax on most timing differences which
arise between its taxable profits and results as stated in the financial
statements. The full amount of the provision is discounted using a discount rate
similar to the current post tax rates of return on UK treasury gilts. The change
in accounting policy as a result of the introduction of FRS19 has necessitated a
restatement of prior years. The impact is to increase the deferred tax
provision, increase goodwill amortisation, and reduce profit and loss account
reserves by (pound)78.9m at 31 March 2001. The deferred tax charge in the profit
and loss account for the year ended 31 March 2001 was increased by (pound)4.1m
and goodwill amortisation was increased by (pound)0.1m. Accordingly, the results
for prior periods have been restated by these amounts. A revision of
(pound)51.9m has also been made to the provisional fair values on acquisition
(Note 15).
BASIS OF PREPARATION
The financial statements have been prepared under the historical cost convention
and in accordance with applicable accounting standards.
BASIS OF CONSOLIDATION
These financial statements are the result of the consolidation of the financial
statements of the Company and its subsidiary undertakings drawn up for the year
ended 31 March 2002. The results of subsidiary undertakings acquired or sold are
consolidated for the periods from or to the date on which control passed.
Acquisitions are accounted for under the acquisition method.
On 11 September 2001, Western Power Distribution Holdings Limited became the
parent company of the WPD Holdings UK group through a share for share exchange
with WPD Holdings UK's owners, Mirant and PPL. The group reconstruction has been
accounted for using the merger principles set out in FRS6. Accordingly, the
financial information for the current period has been presented as if WPD
Holdings UK had been owned by Western Power Distribution Holdings Limited
throughout the current and comparative accounting period.
GOODWILL
Goodwill arising on the acquisition of subsidiary undertakings and businesses,
representing any excess of the fair value of the consideration given over the
fair value of the identifiable assets and liabilities acquired, is capitalised
and written off on a straight line basis over its useful economic life.
Provision is made for any impairment.
Negative goodwill is similarly included in the balance sheet and is credited to
the profit and loss account in the periods in which the acquired non-monetary
assets are recovered through depreciation or sale. Negative goodwill in excess
of the fair values of the non-monetary assets acquired is credited to the profit
and loss account in periods expected to benefit.
Goodwill arising on acquisitions in the year ended 31 March 1998 and earlier
periods was taken to reserves in accordance with the accounting standard then in
force. As permitted by the current accounting standard the goodwill previously
taken to reserves has not been reinstated in the balance sheet. On disposal or
closure of a previously acquired business, the attributable amount of goodwill
previously taken to reserves is included in determining the profit or loss on
disposal.
14
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
1. ACCOUNTING POLICIES (CONTINUED)
TURNOVER
Turnover is stated net of value added tax. Sales relating to electricity
distributed during the year includes an estimate of the sales value of units
distributed to customers but not billed by the period end. Other sales relate to
the invoice value of other goods and services provided.
IT CONSULTANCY AND DEVELOPMENT COSTS
Significant IT consultancy and development costs are capitalised when tangible
benefits accrue, and amortised over their estimated useful economic life from
the date of first use. Other IT consultancy and development costs are charged to
the profit and loss account in the period in which they are incurred.
LEASES
Rentals for operating leases are charged to the profit and loss account in equal
annual amounts over the period of the lease.
RESEARCH
Expenditure on research is written off to the profit and loss account in the
period in which it is incurred.
PENSION COSTS
The Group operates three pension schemes. Contributions to defined contribution
pension schemes are charged to the profit and loss account or capital
expenditure as they become payable in accordance with the rules of the schemes.
Contributions to defined benefit pension schemes are charged to the profit and
loss account or capital expenditure so as to spread the cost of pensions over
employees' working lives with the Group. Differences between amounts charged to
the profit and loss account or capital expenditure and amounts funded are shown
as either accruals or prepayments in the balance sheet. Any capital cost of ex
gratia and supplementary pensions is charged to the profit and loss account in
the period in which they are granted.
TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at cost less any provision for impairment less
amounts provided to write off the cost less anticipated residual value of the
assets over their useful economic lives, which are as follows:
Years
Generation assets 15-40
Distribution assets Up to 40
Buildings - freehold Up to 60
- leasehold Lower of lease period or 60 years
Fixtures and equipment Up to 20
Vehicles and mobile plant Up to 10
Depreciation on distribution network assets is charged at 3% for 20 years
followed by 2% for the remaining 20 years. Other assets are depreciated on a
straight line basis. Customers' contributions towards distribution network
assets, which include capital grants, are credited to the profit and loss
account over the life of the distribution network assets to which they relate.
The unamortised amount of such contributions is shown as a deduction from fixed
assets. This is a departure from the Companies Act 1985 requirements which
require fixed assets to be included at their purchase price or production cost
and hence the unamortised amount of contributions would be presented as deferred
income. However, contributions relate directly to the cost of fixed assets used
in the distribution network and it is the opinion of the directors that the
treatment adopted is necessary to give a true and fair view. The value of
contributions is shown in Note 12.
The carrying values of tangible fixed assets are reviewed for impairment if
events or changes in circumstances indicate the carrying value may not be
recoverable.
15
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
1. ACCOUNTING POLICIES (CONTINUED)
FINANCE COSTS
Finance costs of debt are recognised in the profit and loss account over the
term of such instruments at a constant rate on the carrying amount.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are used by the Group for the management of
foreign currency and interest rate exposures. The Group only uses derivatives
for hedging purposes. Gains and losses on foreign currency hedges are recognised
as an adjustment to the carrying amount when the hedged transaction occurs.
Interest rate differentials are reflected as an adjustment to interest expense
as they accrue.
FOREIGN CURRENCY
Monetary liabilities denominated in foreign currencies at the balance sheet date
are reported at the rates of exchange prevailing at that date and any gain or
loss arising from a change in exchange rates is included as an exchange gain or
loss in the profit and loss account. Where swaps convert a liability from
another currency to sterling, as in the case of long term debt, the liability is
accounted for in sterling at the exchange rate fixed by the swap.
TAXATION
The charge for ordinary taxation takes into account the full provision for
deferred tax, using the approach set out in FRS19 "Deferred Tax", in respect of
timing differences on a discounted basis. Previously the provision for deferred
tax was accounted for on the partial provisioning basis required by Statement of
Standard Accounting Practice ("SSAP") 15. The comparative figures in the primary
statements and notes have been restated to reflect the new policy.
Current tax is provided at amounts expected to be paid (or recovered) using the
tax rates and laws that have been enacted or substantially enacted by the
balance sheet date.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right to
pay less tax in the future have occurred at the balance sheet date. Timing
differences are differences between the Group's taxable profits and its results
as stated in the financial statements that arise from the inclusion of gains and
losses in tax assessments in periods different from those in which they are
recognised in the financial statements.
A net deferred tax asset is regarded as recoverable and therefore recognised
only when, on the basis of all available evidence, it can be regarded as more
likely than not that that there will be suitable taxable profits from which the
future reversal of the underlying timing differences can be deducted.
Deferred tax is not recognised when fixed assets are revalued unless by the
balance sheet date there is a binding agreement to sell the revalued asset and
the gain or loss expected to arise on sale has been recognised in the financial
statements. Neither is deferred tax recognised when fixed assets are sold and it
is more likely than not that the taxable gain will be rolled over, being charged
to tax only if and when the replacement assets are sold.
Deferred tax is measured at the average tax rates that are expected to apply in
the periods in which the timing differences are expected to reverse, based on
tax rates and laws that have been enacted or substantively enacted by the
balance sheet date. Deferred tax is measured on a discounted basis to reflect
the time value of money over the period between the balance sheet date and the
dates on which it is estimated that the underlying timing differences will
reverse. The discount rates used reflect the post-tax yields to maturity that
can be obtained on Government bonds with similar maturity dates and currencies
to those of the deferred tax assets or liabilities.
16
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
1. ACCOUNTING POLICIES (CONTINUED)
PROPERTY
Properties surplus to operational requirements are stated at the lower of cost
and net realisable value. Profits are recognised when properties are sold. Sales
are accounted for when there is an unconditional exchange of contracts.
INVESTMENTS
Investment income is included in the financial statements of the period in
respect of which it is receivable. Fixed asset investments are stated at cost
less any provisions for impairment. Current asset investments are valued at the
lower of cost and net realisable value.
STOCKS
Stocks, which consist of raw materials and consumables, are valued at the lower
of cost and net realisable value which takes account of any provision necessary
to recognise damage and obsolescence.
2. SEGMENTAL ANALYSIS
Distribution involves the delivery of electricity across the Group's
distribution network.
PROFIT BEFORE
TURNOVER FINANCE CHARGES NET ASSETS
& TAX
2002 2001 2002 2001 2002 2001
(As restated) (As restated)
(POUND)m (pound)m (POUND)m (pound)m (POUND)m (pound)m
- ---------------------------------------------------------------------------------------------------------
Continuing operations:
Electricity distribution South West 213.2 211.6 97.7 74.5 1,044.0 1,052.3
Electricity distribution South Wales 161.4 5.7 68.7 2.2 623.8 617.1
Other activities 37.7 32.2 13.2 19.5 173.0 522.9
Gain on disposal of contract for
differences (Note 4(a)) 29.4 -
Less intra Group trading (13.1) (5.9) (0.6) (0.4)
----- -----
Operating profit 208.4 95.8
Income from associated undertakings 0.1 -
Income/(loss) from fixed asset
investments:
Teesside Power Limited 6.1 4.0
Other 1.5 (1.1)
Profit on sale of properties in
continuing operations 8.2 -
Gain on liquidation of subsidiaries
(Note 4(b)) - 23.8
Deferred contingent consideration on
disposal of subsidiaries (Note 4(c)) - 15.5
Deferred contingent gain on disposal of
electricity supply activity - 2.1
Amounts written off investments
(Note 4(d)) (53.1) -
Net debt (Note 25) (1,324.2) (1,593.3)
- ---------------------------------------------------------------------------------------------------------
399.2 243.6 171.2 140.1 516.6 599.0
- ---------------------------------------------------------------------------------------------------------
17
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
2. SEGMENTAL ANALYSIS (CONTINUED)
Turnover is all in respect of sales to customers in the United Kingdom. Turnover
and costs are allocated directly to the activity to which they relate wherever
possible; however, because of the integrated nature of the Group's activities,
it is necessary to apportion or recharge certain costs between activities.
3. OPERATING EXPENSES
The directors consider that the nature of the business is such that the analysis
of expenses shown in the profit and loss account is more informative than that
set out in the formats specified by the Companies Act 1985.
2002 2001
(As restated)
(POUND)m (pound)m
- -------------------------------------------------------------------------------------------------------
Cost of sales 37.9 22.4
Network expenses 139.1 105.8
Other operating expenses 43.2 19.6
- -------------------------------------------------------------------------------------------------------
220.2 147.8
- -------------------------------------------------------------------------------------------------------
Other operating expenses include customer service, billing marketing activities,
and administration.
4. EXCEPTIONAL ITEMS
(a) In September 2000, WPD Limited, an affiliate of the Group, acquired the
share capital of Hyder plc. Subsequent to the acquisition, Hyder's electricity
distribution business, WPD South Wales plc, was transferred to the Company's
immediate subsidiary, WPD Holdings UK, and substantially all of Hyder's other
subsidiaries and fixed asset investments were sold. As part of this disposal
programme, Dwr Cymru Cyfyngedig ("DCC"), a water supply and sewerage services
company, was sold on 11 May 2001 to Glas Cymru (Securities) Cyfyngedig ("Glas"),
a company limited by guarantee operating on a not-for-profit basis. Glas was
established for the purpose of acquiring and owning DCC and has no relationship
with the Group.
Prior to the sale, service contracts, running for a fixed term of four years to
31 March 2005 and covering DCC's operations and maintenance, customer services
and IT, were competitively tendered, and DCC was the subject of a financial
restructuring. To allow the restructuring to proceed before the outsourcing was
complete, DCC's operating costs were fixed by means of a contract for
differences ("CfD") between WPD Finance Limited, an indirect subsidiary of the
Company, and DCC.
Under the terms of the CfD, WPD Finance Limited receives annual difference
payments from DCC to the extent that DCC's operation and maintenance costs,
customer services costs, and IT costs for providing water and sewerage services
are below a specified fixed amount. DCC receives annual difference payments from
WPD Finance Limited if costs are above the fixed amount.
On 1 October 2001, the CfD was sold for consideration of (pound)29.7m realising
a gain of (pound)29.4m.
18
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
4. EXCEPTIONAL ITEMS (CONTINUED)
(b) A gain of (pound)23.8m was recorded in 2001 as a result of the liquidation
of two subsidiaries. These subsidiaries held US dollar investments in indirect
subsidiaries of Mirant and PPL, the two US owners of the Company. The gain
recorded in the UK was offset by losses recorded in the US by the two owners.
(c) In October 1996, WPD South West sold three subsidiaries to a third party
for a nominal price. Contingent consideration of (pound)15.5m was due subject to
the resolution of certain issues. These were resolved in February 2001 and the
consideration (plus interest) was recognised at that point. Payment was received
from the third party in April 2001.
(d) On 2 December 2001, Enron filed for bankruptcy in the US. The Group owns a
15.4% interest in Teesside Power Limited ("Teesside"), owner of a 1,925MW
natural gas-fired, combined-cycle plant. Enron participates in Teesside through
its European affiliates as an owner, an operator and a power purchaser of the
project. Failure by Enron to perform on its obligations related to Teesside has
created significant risk as to the ongoing viability of the project at current
investment levels. In the December 2001 quarter, the Group provided against the
full carrying value ((pound)53.1m) of its equity investment in Teesside. This is
partly offset by the write back of a consortium tax liability ((pound)12.3m)
relating to Teesside which is now anticipated will not be payable.
5. OPERATING PROFIT
2002 2001
(POUND)m (pound)m
- -------------------------------------------------------------------------------------------------
Operating profit is stated after charging:
Depreciation 77.2 58.8
Amortisation of goodwill 7.2 0.3
Operating lease rentals:
Plant, machinery and equipment 2.8 3.9
Other 0.7 0.5
Research and development 0.4 0.3
Auditors' remuneration:
Audit fees and expenses 0.2 0.1
Other fees and expenses - -
19
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
6. FINANCE CHARGES (NET)
2002 2001
(POUND)m (pound)m
- ---------------------------------------------------------------------------------------------------------
Interest payable and similar charges:
On bank loans and overdrafts 22.7 26.1
Derivative restructuring costs - 1.4
On loans from affiliated companies 1.1 8.8
Other 84.7 35.6
- ---------------------------------------------------------------------------------------------------------
108.5 71.9
Interest receivable:
On loans to affiliated companies (9.1) (17.5)
On deferred contingent consideration (Note 4(c)) - (3.5)
Other (6.2) (1.5)
- ---------------------------------------------------------------------------------------------------------
93.2 49.4
- ---------------------------------------------------------------------------------------------------------
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
(a) Analysis of charge in the year
2002 2001
(As restated)
(POUND)m (pound)m
- ---------------------------------------------------------------------------------------------------------
Current tax:
UK corporation tax on profits for the year 23.5 22.1
Adjustment to current tax in respect of previous years 0.1 (1.5)
Release of consortium tax in respect of previous years (12.3) -
- ---------------------------------------------------------------------------------------------------------
Total current tax (Note 7(b)) 11.3 20.6
Deferred tax:
Origination and reversal of timing differences 12.7 8.3
Increase in discount (4.3) (2.5)
- ---------------------------------------------------------------------------------------------------------
Total deferred tax (Note 20) 8.4 5.8
- ---------------------------------------------------------------------------------------------------------
Tax on profit on ordinary activities 19.7 26.4
- ---------------------------------------------------------------------------------------------------------
20
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
7. TAX ON PROFIT ON ORDINARY ACTIVITIES (CONTINUED)
(b) Factors affecting tax charge for the year
The tax assessed for the year is lower than the standard rate of corporation tax
in the UK (30%). The differences are explained below:
2002 2001
(POUND)m (pound)m
- ---------------------------------------------------------------------------------------------------------
Profit on ordinary activities before tax 78.0 90.7
- ---------------------------------------------------------------------------------------------------------
Profit on ordinary activities multiplied by standard rate of
corporation tax in the UK of 30% 23.4 27.2
Effects of:
Expenses not deductible and income not taxable for tax
purposes (0.5) (5.9)
Capital allowances for the year in excess of depreciation (11.4) (10.4)
Other timing differences (1.3) 2.2
Adjustments to tax charge in respect of previous years 0.1 (1.5)
Write off of investment 7.8 -
Consortium creditor written back (12.3) -
Fair value adjustments 14.3 8.4
Utilisation of tax losses (8.8) 0.6
- ---------------------------------------------------------------------------------------------------------
Current tax charge for the year (Note 7(a)) 11.3 20.6
- ---------------------------------------------------------------------------------------------------------
FRS19 "Deferred tax" (Note 1), issued on 7 December 2000, requires full
provision to be made for deferred tax assets and liabilities, subject to certain
exceptions. Previously deferred tax was provided for in respect of timing
differences to the extent that it was probable that a liability would
crystallise in the foreseeable future. FRS19 has been applied in preparing the
31 March 2002 financial statements and comparative figures have been restated in
the Group profit and loss account, the balance sheet and notes.
The effect of the change in accounting policy on profit retained for the year
ended 31 March 2001 has been to increase the charge for deferred tax and the
goodwill amortisation relating to the Hyder Industrial Group acquisition.
(c) Factors that may affect future tax charges
Based on current capital investment plans, the Group expects to continue to be
able to claim capital allowances in excess of depreciation in future years.
8. DIVIDENDS
2002 2001
(POUND)m (pound)m
- ---------------------------------------------------------------------------------------------------------
Equity dividends on ordinary shares 140.7 -
- ---------------------------------------------------------------------------------------------------------
21
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
9. EMPLOYEE COSTS AND NUMBERS (INCLUDING EXECUTIVE DIRECTORS)
(a) Employee costs
2002 2001
(POUND)M (pound)m
- ---------------------------------------------------------------------------------------------------------
Wages and salaries 72.1 45.0
Social security costs 6.3 3.8
Pension costs (0.3) 1.8
- ---------------------------------------------------------------------------------------------------------
Total employee costs 78.1 50.6
Less allocated to capital expenditure (36.1) (22.5)
- ---------------------------------------------------------------------------------------------------------
Charged to the profit and loss account 42.0 28.1
- ---------------------------------------------------------------------------------------------------------
(b) The average monthly number of employees during the year was: 2002 2001
NUMBER Number
- ---------------------------------------------------------------------------------------------------------
Electricity distribution 2,529 1,645
Other activities 162 112
- ---------------------------------------------------------------------------------------------------------
2,691 1,757
10. DIRECTORS' EMOLUMENTS 2002 2001
(POUND)000 (pound)000
- ---------------------------------------------------------------------------------------------------------
The combined emoluments of the directors comprised:
Base salary (note ii) 418 386
Performance dependent bonus (note iii) 801 1,656
---------------------------------------------------------------------------------------------------------
1,219 2,042
- ---------------------------------------------------------------------------------------------------------
The emoluments of the highest paid director comprised:
Base salary (note ii) 158 143
Performance dependent bonus (note iii) 351 774
- ---------------------------------------------------------------------------------------------------------
509 917
- ---------------------------------------------------------------------------------------------------------
<FN>
(i) Emoluments include those for services to the Hyder Limited group.
(ii) Base salary for directors also includes benefits in kind.
(iii) The bonus amounts include values relating to the acquisition of Hyder in
September 2000, together with the subsequent restructuring of the Hyder
group including the securitisation and sale of Welsh Water. The amount of
the annual bonus is based on the Group's financial performance, improvements
in the reliability of the electricity network (reduction in minutes
customers are off supply), customer satisfaction, and other factors. An
element of the prior year bonus was estimated in 2001 and has been adjusted
above to the actual figures.
(iv)The three executive directors are members of the Electricity Supply Pension
Scheme (Note 27). At 31 March 2002, the highest paid director had accrued
annual pension benefits of (pound)68,583 (2001: (pound)50,469).
</FN>
22
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
11. INTANGIBLE FIXED ASSETS
GROUP Goodwill
(pound)m
- ---------------------------------------------------------------------------------------------------------
COST
At 1 April 2001 - as previously stated 95.0
Prior year adjustment for FRS19 (Note 1) 51.9
- ---------------------------------------------------------------------------------------------------------
At 1 April 2001 - as restated 146.9
Additions (Note 14) 0.4
Revision to provisional fair values (Note 15) (3.0)
- ---------------------------------------------------------------------------------------------------------
At 31 March 2002 144.3
- ---------------------------------------------------------------------------------------------------------
AMORTISATION
At 1 April 2001 - as previously stated (0.2)
Prior year adjustment for FRS19 (Note 1) (0.1)
- ---------------------------------------------------------------------------------------------------------
At 1 April 2001 - as restated (0.3)
Amortisation for the year (7.2)
- ---------------------------------------------------------------------------------------------------------
At 31 March 2002 (7.5)
- ---------------------------------------------------------------------------------------------------------
NET BOOK VALUE AT 31 MARCH 2002 136.8
- ---------------------------------------------------------------------------------------------------------
Net book value at 31 March 2001 - as restated 146.6
- ---------------------------------------------------------------------------------------------------------
Goodwill arising on the acquisition of Hyder Industrial Group Limited (Note 15)
is being amortised evenly over its estimated useful economic life of 20 years.
23
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
12. TANGIBLE FIXED ASSETS
Non-network Vehicles Deduct:
GROUP Distribution land & Fixtures & & mobile customers' Total
Generation network buildings equipment plant contributions
(pound)m (pound)m (pound)m (pound)m (pound)m (pound)m (pound)m
- ------------------------------------------------------------------------------------------------------------------------------
COST
At 1 April 2001 0.6 2,111.6 36.6 83.0 20.1 (185.6) 2,066.3
Additions - 124.4 3.0 16.8 2.1 (26.7) 119.6
Revision to provisional
fair values - - (0.8) (0.4) - - (1.2)
Disposals - (13.4) (6.7) (14.9) (0.8) 0.2 (35.6)
- ------------------------------------------------------------------------------------------------------------------------------
At 31 March 2002 0.6 2,222.6 32.1 84.5 21.4 (212.1) 2,149.1
- ------------------------------------------------------------------------------------------------------------------------------
DEPRECIATION
At 1 April 2001 0.2 229.4 2.5 38.5 6.9 (4.4) 273.1
Charge for the year - 72.7 0.5 9.8 2.8 (7.1) 78.7
Disposals - (12.3) (0.6) (11.6) (0.5) 0.2 (24.8)
- ------------------------------------------------------------------------------------------------------------------------------
At 31 March 2002 0.2 289.8 2.4 36.7 9.2 (11.3) 327.0
- ------------------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE
AT 31 MARCH 2002 0.4 1,932.8 29.7 47.8 12.2 (200.8) 1,822.1
- ------------------------------------------------------------------------------------------------------------------------------
At 1 April 2001 0.4 1,882.2 34.1 44.5 13.2 (181.2) 1,793.2
- ------------------------------------------------------------------------------------------------------------------------------
The net book value of land and buildings comprises :
Non-network Network Total
land and buildings land and buildings land and buildings
2002 2001 2002 2001 2002 2001
(POUND)m (pound)m (POUND)m (pound)m (POUND)m (pound)m
- -----------------------------------------------------------------------------------------------
Freehold 26.0 33.1 95.8 90.1 121.8 123.2
Long leasehold 3.4 0.7 - - 3.4 0.7
Short leasehold 0.3 0.3 0.5 0.3 0.8 0.6
- -----------------------------------------------------------------------------------------------
29.7 34.1 96.3 90.4 126.0 124.5
- -----------------------------------------------------------------------------------------------
Included within the Group's fixed assets are assets in the course of
construction amounting at 31 March 2002 to(pound)16.1m (2001:(pound)67.6m) and
land at a cost of(pound)18.3m (2001:(pound)17.4m).
COMPANY
The Company had no tangible fixed assets at 31 March 2002.
24
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
13. FIXED ASSET INVESTMENTS
GROUP COMPANY
Shares in
Group
Associated Unlisted under -
Undertakings investments Total under
takings
(pound)m (pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------------------------------
COST
At 1 April 2001 2.0 53.2 55.2 -
Additions - - - 353.2
Share of loss retained by associated
undertakings (0.2) - (0.2) -
- -------------------------------------------------------------------------------------------------------
At 31 March 2002 1.8 53.2 55.0 353.2
- -------------------------------------------------------------------------------------------------------
AMOUNTS WRITTEN OFF
At 1 April 2001 - - - -
Written off (Note 4(d)) - 53.1 53.1 -
- -------------------------------------------------------------------------------------------------------
At 31 March 2002 - 53.1 53.1 -
- -------------------------------------------------------------------------------------------------------
NET BOOK VALUE 1.8 0.1 1.9 353.2
- -------------------------------------------------------------------------------------------------------
The principal subsidiaries, associated undertakings and unlisted investments at
31 March 2002 are:
NAME PRINCIPAL ACTIVITY PROPORTION
%
SUBSIDIARY UNDERTAKINGS
WPD 1957 Limited Investment company 100
WPD Holdings UK Investment company 100
WPD 1975 Limited Investment company 100
WPD Holdings Limited Investment company 100
SIUK Finance Investment company 100
SIUK Investments Investment company 100
SIUK plc Investment company 100
Western Power Distribution (South West) plc Electricity distribution 100
Surf Telecoms Limited Telecommunications 100
Western Power Generation Limited Power generation 100
Western Power Investments Limited Investment in power generation 100
WPD Property Investments Limited * Property management 100
WPD Property Developments Limited * Property development 100
Aztec Insurance Limited ^ Insurance 100
WPD Insurance Limited ^ Insurance 100
Brecon Insurance Company Limited ^ Insurance 100
SIUK Capital Trust I + Financing 100
South Western Helicopters Limited * Helicopter operator 100
WPD Investments Limited * Investment company 100
Meter Reading Services Limited * Data collection 100
WPD Finance Limited * Investment company 100
Hyder Industrial Group Limited Investment company 100
25
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
13. FIXED ASSET INVESTMENTS (CONTINUED)
NAME PRINCIPAL ACTIVITY PROPORTION
%
SUBSIDIARY UNDERTAKINGS (CONTINUED)
Western Power Distribution (South Wales) plc Electricity distribution 100
Hyder Utilities (Operations) Limited Services 100
South Wales TPL Investments Limited Investment in power generation 100
Temple Back Developments Limited Property development 100
Weston Super Mare Developments Limited Property development 100
ASSOCIATED UNDERTAKINGS
Wind Resources Limited Investment in generation projects 45
Carland Cross Limited Power generation 45
Coal Clough Limited Power generation 45
UNLISTED INVESTMENTS
Teesside Power Limited Power generation 15
<FN>
^ Incorporated in Guernsey.
+ Incorporated in the United States.
All undertakings are registered in England and Wales unless stated.
</FN>
With the exception of SIUK Capital Trust, all holdings are in ordinary shares.
The SIUK Capital Trust holding is in common securities.
The financial year end for the subsidiary undertakings marked * is 31 December;
their results are included to 31 March based on management accounts. The year
end of the ultimate parent company is 31 December; the other subsidiary
undertakings listed above have a 31 March year end for regulatory and other
reasons.
Except for WPD Holdings UK, WPD 1957 Limited and WPD 1975 Limited, all shares
are held by subsidiary undertakings.
14. ACQUISITION
In December 2001, the Group acquired the entire issued share capital of Brecon
Insurance Company Limited for cash consideration of (pound)3.0m. The acquisition
method of accounting has been adopted and the goodwill on the purchase has been
capitalised and is being amortised over 20 years. Details of the transaction are
shown below:
Provisional fair values
(pound)m
- --------------------------------------------------------------------------------
Other debtors 4.2
Current asset investments 12.0
Cash 0.1
Other creditors (13.7)
- --------------------------------------------------------------------------------
NET ASSETS 2.6
Goodwill arising on acquisition 0.4
- --------------------------------------------------------------------------------
Purchase consideration 3.0
- --------------------------------------------------------------------------------
26
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
15. REVISION TO PROVISIONAL FAIR VALUES OF HYDER INDUSTRIAL GROUP LIMITED
On 16 March 2001, the Group acquired Hyder Industrial Group Limited ("HIG"). As
set out in the March 2001 financial statements of WPD Holdings UK group, the
fair values of the assets and liabilities of HIG, established for the purposes
of those financial statements, were provisional due to the size and complexity
of the acquisition. In the year ended 31 March 2002, these fair values have been
finalised as permitted by FRS7 "Fair values in acquisition accounting". The
details of the adjustments to the provisional fair values are set out below.
Provisional
fair values Prior year Provisional Revisions to
as previously adjustment fair values provisional Final
stated (Note*) as restated fair values fair values
(pound)m (pound)m (pound)m (pound)m (pound)m
- -------------------------------------------------------------------------------------------------------------
Tangible fixed assets 548.9 - 548.9 (1.2) 547.7
Fixed asset investments 40.0 40.0 - 40.0
Stocks 4.6 4.6 - 4.6
Debtors 59.4 - 59.4 - 59.4
Cash and current asset investments 30.4 - 30.4 - 30.4
Creditors due within one year (63.3) - (63.3) - (63.3)
Creditors due after more than one year (3.4) - (3.4) - (3.4)
Long term loans - Eurobonds (198.7) - (198.7) - (198.7)
Long term loan - affiliate (153.7) - (153.7) - (153.7)
Provisions for liabilities and charges (36.1) (51.9) (88.0) (0.1) (88.1)
- -------------------------------------------------------------------------------------------------------------
NET ASSETS 228.1 (51.9) 176.2 (1.3) 174.9
Goodwill arising on acquisition 95.0 51.9 146.9 (3.0) 143.9
- -------------------------------------------------------------------------------------------------------------
323.1 - 323.1 (4.3) 318.8
- -------------------------------------------------------------------------------------------------------------
SATISFIED BY:
Fair value of debt and associated
derivatives transferred 624.9 - 624.9 - 624.9
Cash received (306.1) - (306.1) - (306.1)
Costs associated with the acquisition 4.3 - 4.3 (4.3) -
- -------------------------------------------------------------------------------------------------------------
323.1 - 323.1 (4.3) 318.8
- -------------------------------------------------------------------------------------------------------------
<FN>
* PRIOR YEAR ADJUSTMENT
</FN>
The provisional fair values attributable to the net assets of HIG have been
restated for the effects of the implementation of the Group's new accounting
policy for deferred tax in accordance with FRS19 (Note 1).
27
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
16. DEBTORS
GROUP COMPANY
2002 2001 2002
(POUND)m (pound)m (POUND)m
- -----------------------------------------------------------------------------------------------------------
AMOUNTS FALLING DUE WITHIN ONE YEAR:
Trade debtors 69.5 77.3 -
Pensions:
Prepayment recognised 6.5 8.1 -
Other (1.2) (3.6) -
Advance corporation tax recoverable 0.3 0.3 -
Prepayments and accrued income 55.0 61.3 -
Other debtors 37.2 14.6 -
- -----------------------------------------------------------------------------------------------------------
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR:
Prepayments and accrued income 0.6 0.6 -
Other debtors 1.0 1.0 -
- -----------------------------------------------------------------------------------------------------------
168.9 159.6 -
- -----------------------------------------------------------------------------------------------------------
17. CURRENT ASSET INVESTMENTS
GROUP COMPANY
2002 2001 2002
(POUND)m (pound)m (POUND)m
- -----------------------------------------------------------------------------------------------------------
Listed - UK Government securities 22.4 10.2 -
Short-term deposits - 108.3 -
Unlisted - loans to affiliate 92.6 439.6 -
Fixed term and call deposits - 16.8 -
- -----------------------------------------------------------------------------------------------------------
115.0 574.9 -
- -----------------------------------------------------------------------------------------------------------
The market value of the listed investments is not materially different to the
values shown above.
28
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
18. CREDITORS
GROUP COMPANY
2002 2001 2002
(POUND)m (pound)m (POUND)m
- -----------------------------------------------------------------------------------------------------------
AMOUNTS FALLING DUE WITHIN ONE YEAR:
Bank loans and overdrafts 326.3 420.3 -
$168m 6.375% unsecured bonds 2001 - 100.7 -
Loan notes * 3.1 3.7 -
Loans due to parent undertakings - 150.0 -
Loan due to affiliate - 2.2 -
Payments received on account - 8.9 -
Trade creditors 8.8 12.3 -
UK corporation tax 33.8 28.8 -
Other taxation and social security 3.3 5.6 -
Other creditors 43.6 29.2 -
Accruals and deferred income 76.3 90.9 -
- -----------------------------------------------------------------------------------------------------------
495.2 852.6 -
- -----------------------------------------------------------------------------------------------------------
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR:
Accruals and deferred income 2.9 2.9 -
Repayable between two and five years:
$200m 6.750% unsecured bonds 2004 125.2 127.8 -
$332m 6.800% unsecured bonds 2006 198.0 - -
Consortium tax creditor (Note 4(d)) - 12.3 -
Repayable in five years or more:
$332m 6.800% unsecured bonds 2006 - 197.7 -
$200m 6.875% unsecured bonds 2007 121.0 121.7 -
$225m 6.500% unsecured bonds 2008 129.5 129.0 -
$100m 7.250% unsecured bonds 2017 59.8 60.1 -
$300m 7.375% unsecured bonds 2028 - 173.7 -
$255m 7.375% unsecured bonds 2028 147.0 - -
Mandatorily redeemable preferred securities ** 49.8 49.7 -
9.25% Eurobonds 2020 196.1 198.6 -
- -----------------------------------------------------------------------------------------------------------
1,029.3 1,073.5 -
- -----------------------------------------------------------------------------------------------------------
<FN>
* The loan notes were issued to certain shareholders of WPD South West at the
time of acquisition; the notes are redeemable at the option of the note holders
on fixed dates between 30 June 1996 and 31 December 2002.
** In January 1997, SIUK Capital Trust I (the "Trust"), a statutory trust formed
under laws of the State of Delaware, US and established for the sole purpose of
issuing its own securities and investing the proceeds thereof in the 8.23%
subordinated debentures issued by SIUK plc and scheduled to mature on 1 February
2027, sold US$82m of its 8.23% preferred securities. SIUK plc considers that the
mechanisms and obligation relating to the preferred securities, taken together,
constitute a full and unconditional guarantee by SIUK plc of the Trust's payment
obligations with respect to the preferred securities.
</FN>
29
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
19. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
The Group has both short-term and long-term borrowings which are used to finance
the Group's operations. Note 18 provides further details.
These borrowings are exposed to certain market risks including changes in
interest rates and cross currency exchange rates. To reduce the volatility
attributable to these exposures the Group has entered into various derivative
transactions. At 31 March 2002, these derivatives fixed the value of sterling
payments in respect of 81% of the long-term borrowings and fixed the interest
payments on (pound)250.0m of the short-term borrowings, the total value of which
amounted to (pound)329.4m in 2002 (2001: (pound)574.0m). Subsequent to the year
end, on 10 May 2002, the interest rate swaps covering (pound)250.0m of
short-term debt were cancelled and certain cross currency swaps were
restructured.
It is, and has been throughout the period under review, the Group's policy that
no speculative trading in financial instruments shall be undertaken. Interest
rate and cross currency rate swaps are designated as hedges of underlying debt
obligations and, as such, swap payments are reflected as an adjustment to
interest payable.
These derivatives involve, to a certain degree, credit risk. The Group may be
exposed to loss in the event of non-performance by a counterparty. The Group
controls credit risk by entering into derivative contracts only with highly
credit rated counterparties. The Group has not experienced non-performance by
any counterparty.
Short term debtors and creditors have been excluded from the disclosures with
the exception of short-term commercial paper and other short-term borrowings.
INTEREST RATE PROFILE
After taking into account interest rate swaps and cross currency swaps entered
into by the Group, all financial liabilities can be regarded as sterling
liabilities, with an interest rate profile at 31 March 2002 as follows :
Fixed rate borrowings
---------------------
Weighted
Average
Weighted period for
Floating Fixed average which rate
Rate rate Total interest rate is fixed
(pound)m (pound)m (pound)m % Years
- ----------------------------------------------------------------------------------------------------------------------------
As at 31 March 2002 79.4 1,276.4 1,355.8 7.9% 9.8
As at 31 March 2001 324.0 1,409.0 1,733.0 7.9% 10.7
- ----------------------------------------------------------------------------------------------------------------------------
At 31 March 2002, the floating rate debt consisted of the loan notes, bank loans
and overdrafts disclosed in Note 18 (total value: (pound)329.4m) less
(pound)250.0m which represented the notional amount of interest rates swaps
hedging such debt. The fixed rate debt consisted of the (pound)250.0m of
short-term debt covered by swaps and long-term loans disclosed in Note 18. The
long-term loans are fully hedged by interest rate and cross currency swaps.
Subsequent to the year end, on 10 May 2002, the interest rate swaps covering
(pound)250.0m of short-term debt were cancelled (see below and Note 29).
The interest rate on the floating rate financial liability is primarily linked
to one month or overnight London Inter Bank Offered Rate ("LIBOR").
CURRENCY EXPOSURES
As at 31 March 2002, after taking into account the effect of cross currency
swaps the Group had no currency exposures.
30
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
19. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL LIABILITY MATURITY PROFILE
The maturity profile of the Group's financial liabilities at 31 March 2002 was
as follows:
2002 2001
(POUND)m (POUND)m
- ----------------------------------------------------------------------------------------------------------
In one year or less 329.4 674.7
In more than two years but not more than five years 323.2 127.8
In more than five years 703.2 930.5
- ----------------------------------------------------------------------------------------------------------
1,355.8 1,733.0
- ----------------------------------------------------------------------------------------------------------
BORROWING FACILITIES
The Group had undrawn committed borrowing facilities at 31 March 2002 in respect
of which all relevant conditions precedent had been met, and which expire as
follows:
2002 2001
(POUND)m (POUND)m
- ----------------------------------------------------------------------------------------------------------
In one year or less 139.8 60.6
- ----------------------------------------------------------------------------------------------------------
FAIR VALUES
Set out below is a comparison by category of book values and fair values of the
Group's primary financial assets and liabilities held or issued to finance the
Group's operations at 31 March 2002:
2002 2001
Book Fair Book Fair
Value Value Value Value
(pound)m (pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------
Current asset investments 115.0 114.9 574.9 572.2
Cash at bank 9.2 9.2 4.4 4.4
Bank loans and overdrafts (326.3) (326.3) (420.3) (420.3)
Short term loan notes (3.1) (3.1) (3.7) (3.7)
Loan from parent undertakings - - (150.0) (150.0)
Current portion of long term borrowings - - (100.7) (117.7)
Long term debt (1,026.4) (1,158.9) (1,058.3) (1,142.5)
Interest rate swaps - (39.2) - (53.4)
Cross currency swaps - 109.0 - 144.0
- -----------------------------------------------------------------------------------------------------------
The fair value of the long term debt is based on the market price as at the year
end. The fair values of all other categories have been calculated by discounting
cashflows at prevailing interest rates.
Subsequent to the year end, on 10 May 2002 the interest rate swaps and certain
cross currency swaps were restructured. Interest rate swaps covering
(pound)250.0m of floating rate debt were cancelled. The restructuring of these
interest rate swaps and certain of the currency rate swaps will result in lower
interest costs being payable and a higher sterling value being payable on
maturity.
31
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
19. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED)
GAINS AND LOSSES ON HEDGES
The Group enters into interest rate swaps and cross currency swaps to reduce the
volatility of payments related to borrowings. Swap payments are reflected as an
adjustment to interest payable; changes in the fair value of instruments used as
hedges are not recognised in the financial statements. An analysis of these
unrecognised losses is as follows:
GAINS LOSSES TOTAL
(POUND)M (POUND)M (POUND)M
- ---------------------------------------------------------------------------------------------------------------
Unrecognised gains and losses on hedges at 1 April 2001 144.0 (53.4) 90.6
Gains and losses arising in previous years that were recognised
in the year ended 31 March 2002 (12.6) 15.4 2.8
- ---------------------------------------------------------------------------------------------------------------
Gains and losses arising before 1 April 2001 that were not recognised
in the year ended 31 March 2002 131.4 (38.0) 93.4
Gains and losses arising in the year ended 31 March 2002 that were not
recognised in the year (19.0) (4.6) (23.6)
- ---------------------------------------------------------------------------------------------------------------
Unrecognised gains and losses on hedges at 31 March 2002 112.4 (42.6) 69.8
- ---------------------------------------------------------------------------------------------------------------
Of which:
Gains and losses expected to be recognised in the year ended
31 March 2003 6.0 (11.5) (5.5)
Gains and losses expected to be recognised in the year ended
31 March 2004 or later 106.4 (31.1) 75.3
- ---------------------------------------------------------------------------------------------------------------
20. PROVISIONS FOR LIABILITIES AND CHARGES
Reorganisation Group
Deferred &
Taxation Pensions severance Other Total
(pound)m (pound)m (pound)m (pound)m (pound)m
- ---------------------------------------------------------------------------------------------------------------
At 1 April 2001 - as previously stated 61.5 1.8 1.1 23.0 87.4
Prior year adjustment for FRS19 (Note 1) 130.7 - - - 130.7
- ---------------------------------------------------------------------------------------------------------------
At 1 April 2001 - as restated 192.2 1.8 1.1 23.0 218.1
Arising/(released) during the year 8.4 (1.1) - (4.2) 3.1
Acquisition/revision to provisional
fair values - - 0.3 0.3
Utilised during the year - (0.2) (1.1) (2.2) (3.5)
- ---------------------------------------------------------------------------------------------------------------
At 31 March 2002 200.6 0.5 - 16.9 218.0
- ---------------------------------------------------------------------------------------------------------------
Other provisions relate principally to a tree cutting programme and insurance
claims. The Company had no provisions
32
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
20. PROVISIONS FOR LIABILITIES AND CHARGES (CONTINUED)
PROVISIONS FOR DEFERRED TAX
GROUP
2002 2001
(POUND)M (pound)m
- -----------------------------------------------------------------------------------------------------------
Accelerated capital allowances 275.3 263.9
Chargeable gains on sale of electricity supply activities 58.4 58.4
Other timing differences (4.5) (5.8)
- -----------------------------------------------------------------------------------------------------------
Undiscounted provision for deferred tax 329.2 316.5
Discount (128.6) (124.3)
- -----------------------------------------------------------------------------------------------------------
Discounted provision for deferred tax 200.6 192.2
- -----------------------------------------------------------------------------------------------------------
21. CALLED-UP SHARE CAPITAL
COMPANY
2002
(POUND)M
- -----------------------------------------------------------------------------------------------------------
Authorised, allotted, called-up, and fully paid
12,184,716 "A" ordinary shares of(pound)1 each 12.2
11,936,049 "B" ordinary shares of(pound)1 each 11.9
746,003 "C" ordinary shares of(pound)1 each 0.8
5,100,000 "D" ordinary shares of(pound)0.00001 each -
4,900,000 "E" ordinary shares of(pound)0.00001 each -
- -----------------------------------------------------------------------------------------------------------
24.9
- -----------------------------------------------------------------------------------------------------------
<FN>
(a) On incorporation on 9 August 2001, the Company issued one share. On 11
September 2001, this one share was transferred to one of the owners of the
WPD Group. Subsequently on that day, further shares of the Company were
issued to the two shareholders such that they then held shares in the same
proportion and in the same classes as their shares in WPD Holdings UK. On
that day, the two owners then surrendered their shares in WPD Holdings UK to
Western Power Distribution Holdings Limited, which then became the holding
Company for the WPD Group.
(b) The "A" Ordinary shares and the "B" Ordinary shares of the Company have the
same voting rights, while the "C" Ordinary shares have no voting rights.
(c) On 14 December 1999, the "D" and "E" shares were issued to wholly owned
subsidiaries of the two parents, PPL and Mirant respectively, for a total of
(pound)100. The "D" and "E" shares entitle their holders solely to all
distributions arising in WPD Holdings UK from respectively its holdings of
"D" and "E" shares in WPD Holdings Limited.
</FN>
33
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
22. RESERVES
GROUP GROUP& COMPANY COMPANY
Profit & Other Share premium Profit &
loss account reserves account loss account
(pound)m (pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------
At 1 April 2001 - as originally stated 182.4 142.3 328.3 -
Prior year adjustment for FRS19 (Note 1) (78.9) - - -
- -----------------------------------------------------------------------------------------------------------
At 1 April 2001 - as restated 103.5 142.3 328.3 -
Retained loss for the year (82.4) - - -
- -----------------------------------------------------------------------------------------------------------
Balance at 31 March 2002 21.1 142.3 328.3 -
- -----------------------------------------------------------------------------------------------------------
As allowed by section 230 of the Companies Act 1985, the Company has not
presented its own profit and loss account. The profit for 2002 attributable to
shareholders, dealt with in the financial statements of the parent Company, was
(pound)90.0m; a dividend of (pound)90.0m was declared by the Company.
The Group's share of accumulated reserves of associated undertakings at 31 March
2002 was (pound)nil (31 March 2001: (pound)0.2m).
23. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOWS FROM OPERATING
ACTIVITIES
2002 2001
(As restated)
(POUND)M (pound)m
- -----------------------------------------------------------------------------------------------------------
Operating profit 208.4 95.8
Depreciation and amortisation 84.4 59.1
Loss on sale of tangible fixed assets 6.4 3.7
Decrease/(increase) in stocks 4.1 (2.6)
Increase in debtors (6.1) (2.7)
Decrease in creditors (42.8) (24.3)
Decrease in provisions (8.6) (6.1)
- -----------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities 245.8 122.9
- -----------------------------------------------------------------------------------------------------------
34
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
24. ANALYSIS OF CHANGES IN NET DEBT
At Other AT
1 April Cash non-cash 31 MARCH
2001 Flow movements 2002
(pound)m pound)m (pound)m (pound)m
- -----------------------------------------------------------------------------------------------------------
Cash at bank 4.4 4.8 - 9.2
Short-term investments 135.3 (112.9) - 22.4
Debt due within one year :
Bank loans and overdrafts (420.3) 94.0 - (326.3)
$168m 6.375% unsecured bonds 2001 (100.7) 100.9 (0.2) -
Loan notes (3.7) 0.6 - (3.1)
Loan from parent undertakings (150.0) 150.0 - -
Debt due after one year :
$200m 6.750% unsecured bonds 2004 (127.8) - 2.6 (125.2)
$332m 6.800% unsecured bonds 2006 (197.7) - (0.3) (198.0)
$200m 6.875% unsecured bonds 2007 (121.7) - 0.7 (121.0)
$225m 6.500% unsecured bonds 2008 (129.0) - (0.5) (129.5)
$100m 7.250% unsecured bonds 2017 (60.1) - 0.3 (59.8)
$300m 7.375% unsecured bonds 2028 (173.7) 26.3 0.4 (147.0)
Mandatorily redeemable preferred securities (49.7) - (0.1) (49.8)
(pound)150m 9.25% Eurobonds 2020 (198.6) - 2.5 (196.1)
- -----------------------------------------------------------------------------------------------------------
(1,593.3) 263.7 5.4 (1,324.2)
- -----------------------------------------------------------------------------------------------------------
25. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2002 2001
(POUND)m (pound)m
- -----------------------------------------------------------------------------------------------------------
Increase in cash in the year 4.8 2.5
Cash outflow/(inflow) from decrease/(increase) in debt 371.8 (250.3)
Cash (inflow)/outflow from (increase)/decrease in liquid resources (124.9) 91.1
- -----------------------------------------------------------------------------------------------------------
Change in net debt resulting from cash flows 251.7 (156.7)
Borrowings net of short term deposits acquired with subsidiaries 12.0 (167.2)
Debt transferred on acquisition - (612.3)
Amortisation of finance costs 5.4 (0.3)
- -----------------------------------------------------------------------------------------------------------
Movement in net debt in year 269.1 (936.5)
Net debt at 1 April (1,593.3) (656.8)
- -----------------------------------------------------------------------------------------------------------
Net debt at 31 March (1,324.2) (1,593.3)
- -----------------------------------------------------------------------------------------------------------
35
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
26. CAPITAL AND OTHER COMMITMENTS
a) There are annual commitments under operating leases for the Group which
expire:
EQUIPMENT AND VEHICLES LAND AND BUILDINGS
2002 2001 2002 2001
(POUND)m (pound)m (POUND)m (pound)m
- -----------------------------------------------------------------------------------------------------------
Within one year - 0.2 - -
In more than five years 0.4 0.4 0.5 0.6
- -----------------------------------------------------------------------------------------------------------
0.4 0.6 0.5 0.6
- -----------------------------------------------------------------------------------------------------------
b) In common with normal commercial practice, the Group has commitments to pay
rentals for leasehold land and buildings through to the end of the lease
term. This obligation potentially continues to the end of the lease,
whether or not the lease is assigned to a third party. If a lease has been
assigned to a third party, then the original lessee is ultimately
responsible for any default in the rent payment. However, no material
liability is anticipated. The Company has no lease commitments.
c) Fixed asset expenditure contracted but not provided for at 31 March 2002 in
the financial statements was (pound)0.1m (2001: (pound)8.3m) for the Group.
The Company had no fixed asset commitments at the end of the year.
d) The Group uses sterling interest rate swaps to hedge exposure to
fluctuations in interest rates. At 31 March 2002, the Group had in place
swaps with a notional amount of (pound)499.4m, with expiry dates between
2003 and 2012.
e) The Group has put in place foreign currency swap contracts to hedge
exposure to US dollar liabilities in respect of outstanding debt. At 31
March 2002, these swaps were for notional amounts of (pound)839.4m
(US$1,394.0m), with expiry dates between 2004 and 2028. Subsequent to the
year end, certain swaps were restructured (Note 29).
27. PENSION ARRANGEMENTS
The Group has continued to account for pensions in accordance with Statement of
Standard Accounting Practice 24 ("SSAP 24"). FRS17 "Retirement Benefits" was
issued in November 2000 but will not be mandatory for the Group until the year
ending 31 March 2004. Prior to this, phased disclosures are required from 31
March 2002. These disclosures are set out below.
The Group operates three defined benefit schemes, the WPD South West and WPD
South Wales segments of the Electricity Supply Pension Scheme ("ESPS"), and the
Infralec 1992 Scheme. The ESPS provides pension and other related defined
benefits based on final pensionable pay to employees throughout the Electricity
Supply Industry. On 1 April 2002, the separate funds for both WPD South West and
WPD South Wales were merged. The Infralec 1992 Scheme provides benefits on both
a money purchase and final salary basis and is operated in WPD South Wales. The
assets of all three schemes are held separately from those of the Group in
trustee administered funds.
36
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
27. PENSION ARRANGEMENTS (CONTINUED)
A full actuarial valuation of the ESPS and the Infralec 1992 Scheme was carried
out at 31 March 2001 and 31 March 2000, respectively, and updated to 31 March
2002 by Bacon & Woodrow, consulting actuaries. The major assumptions used by the
actuary were:
WPD South West ESPS WPD South Wales ESPS Infralec 1992 Scheme
At 31 March At 31 March At 31 March
2002 2002 2002
Rate of increase in salaries 4.3% 4.3% 4.3%
Discount rate 6.0% 6.0% 6.0%
Inflation assumption 2.8% 2.8% 2.8%
The assets in the schemes and the expected rates of return were:
WPD South West ESPS WPD South Wales ESPS Infralec 1992 Scheme
------------------- -------------------- --------------------
Long-term Long-term Long-term
rate of return Value at rate of return Value at rate of return Value at
expected 31 March expected 31 March expected 31 March
at 31 March 2002 at 31 March 2002 at 31 March 2002
2002 (pound)m 2002 (pound)m 2002 (pound)m
- --------------------------------------------------------------------------------------------------------------------
Equities 8.2% 561.6 8.2% 319.7 8.2% 1.7
Corporate Bonds 6.0% 9.6 6.0% 0.3 5.6% 0.2
Gilts 5.2% 95.2 5.2% 131.3 - -
Property 7.2% 7.3 7.2% 18.3 7.2% 0.1
Other 3.5% 9.0 3.5% 10.3 3.5% 0.1
- --------------------------------------------------------------------------------------------------------------------
Total market value of assets 682.7 479.9 2.1
Present value of scheme liabilities (674.0) (472.4) (2.1)
- --------------------------------------------------------------------------------------------------------------------
Surplus in the scheme 8.7 7.5 -
Related deferred tax liability (2.6) (2.3) -
- --------------------------------------------------------------------------------------------------------------------
Net pension asset 6.1 5.2 -
- --------------------------------------------------------------------------------------------------------------------
The ESPS surplus is being utilised for benefit improvements, to fund a reduction
of 1% in employees' contributions for the three years from 1 April 2002, to
cover anticipated short term early retirement costs, and to continue the
suspension of contributions to the ESPS from the Group until 31 March 2005. The
reduced surplus is being recognised in the financial statements over the average
service lives of employees, as required under SSAP 24. Contributions paid by the
Group to the ESPS during the year amounted to (pound)0.4m (2001: (pound)0.1m).
The Group also operates a defined contribution scheme for which the pension cost
charge for the year amounted to (pound)nil (2001: (pound)0.2m). The assets of
the scheme are held separately from those of the group in an independent fund
administered by the scheme trustee. On 1 April 2001, substantially all of the
active members in this scheme transferred to the ESPS scheme based on defined
benefits.
37
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2002
28. RELATED PARTY TRANSACTIONS
During 2002, the Group purchased services from Mirant and certain of its other
subsidiaries totalling (pound)0.7M (2001: (pound)0.9m).
During 2002, the Group provided services to the WPD Limited group totalling
(pound)1.2m (2001:(pound)1.0m).
29. SUBSEQUENT EVENT
Subsequent to the year end, on 10 May 2002 the Group restructured its interest
rate swaps and certain of its cross currency swaps. This resulted in a gain on
cancelling current cross currency swaps partly offset by a loss on cancelling
the interest rate swaps. This net gain was used towards putting in place new
cross currency swaps at lower rates of interest with a higher redemption value
on maturity.
30. ULTIMATE PARENT UNDERTAKING
The ultimate controlling parties are Mirant Corporation and PPL Corporation,
both registered in the United States, who have equal control of Western Power
Distribution Holdings Limited.
38
REGISTERED OFFICE:
WESTERN POWER DISTRIBUTION HOLDINGS LIMITED
Avonbank
Feeder Road
Bristol BS2 0TB
Telephone : 0117 933 2000
Fax : 0117 933 2001
eMail: info@westernpower.co.uk
Registered number 4267536