Preliminary Results 200405

1
Preliminary Results2004/05

• 18 May 2005

- 1 -
2
Sir Robert SmithChairman
- 2 -
3
Strategy

• Sustained real dividend growth is core objective
• Strong operational performance
• Investment in UK energy businesses
• Delivering dividend increases

- 3 -
4
Gregor AlexanderFinance Director
- 4 -
5
Profit Before Tax
Change
2004
2005

m
m
Operating profit
876.2
692.8
26.5
(90.9)
(85.5)
Interest
29.3
607.3
785.3
PBT
-
-
(133.5)
TXU distribution
-
61.0
Peterhead write down
-
(10.2)
-
Property disposal
19.4
597.1
712.8
PBT before exceptionals
Less FRS 17 income
(13.4)
(2.2)


14.8
15.4
Goodwill
17.2
609.7
714.8
Profit Before Tax
Includes FRS 17, gains on property, other
income and exceptional items
- 5 -
6
Power SystemsOperating Profit
Change
2004
2005

m
m
10.8
118.1
130.8
Scotland
(2.8)
199.4
193.9
England

317.5
324.7
2.3
Impacted by under recovery in 2003/04
Impacted by over recovery in 2003/04
- 6 -
7
Gas Distribution

• Total value of acquisitions - 3.162bn
• 1.08bn equity (SSE - 540m)
• Non-recourse borrowings
• Equity accounting for the networks
• Repex will be capitalised
• 1 June completion date

- 7-
8
Generation Supply

• Operating profit up 29.5 to 386.5m
• Increased contribution from Medway - 25m
• End of ScottishPower coal contract - 18m
• FFF contribution for 8 months - 50m
• Hydro output up and more ROCs - 29m
• Growing supply customer numbers

- 8 -
9
Other BusinessesOperating Profit
Change
2004
2005

m
m
(2.5)
48.7
47.5
Contracting and Connections
60.5
18.3
11.4
Gas Storage
10.6
3.5
202.9
Telecoms
16.8
15.5
18.1
Corporate and property
94.5
79.1
19.5
- 9 -
10
Group Capital Expenditure
2004
2005
m
m
Generation

34.4
Thermal
49.5
49.9
53.9
Hydro
6.7
61.5
Wind
149.8
106.1
147.9
176.7
Power Systems
31.7
3.6
Gas Storage
32.1
25.3
Telecoms and other
289.7
383.5
- 10 -
11
Cash Flow
2004
2005
m
m
615.6
666.2
Free cash flow
-
272.1
TXU, Atlantic and FFF
(259.9)
(309.9)
Capital Expenditure
(306.7)
(330.8)
Dividends paid
49.0
297.6
Positive Cash Flow
(244.5)
(339.0)
Acquisitions
(4.6)
9.7
Change in Equity

(Increase) in net debt
(200.1)
(31.7)
TXU dividend received 159.1m Atlantic debt
recovered 60.0m FFF contract book cash 53.0m
- 11 -
12
Pensions FRS 17

• Sensitive to equity values
• March 2005 net deficit - 143.6m
• March 2004 net deficit - 124.4m
• Cash contributions of 21.9m (all schemes)
• North scheme showed 101.4m surplus - at March
  2005
• South scheme
• deficit of 282.0m
• deficit repair contributions 29.5m
• 76 of contributions recoverable through price
  control revenue

- 12 -
13
Taxation

• Effective current tax rate increased to 25.5
• Current tax expected to rise over next few years
• Complying with FRS 19 on a discounted basis
• Headline tax charge 30.1
• Additional discounted liability of 21.5m
  recognised on balance sheet

Before exceptional items
- 13 -
14
Financial Management

• Interest
• charge up 5.4m to 90.9m
• underlying EBIT interest cover 9x
• Strong balance sheet with Aa3 rating
  re-affirmed
• Minimal refinancing risk
• funding flexibility opportunistic funding
• Share buy backs if conditions appropriate

- 14 -
15
Financial Summary

• Underlying PBT up 17.2 to 714.8m
• Adjusted EPS up 15.0 to 62.2p
• Strong underlying cash flow
• Full year dividend up 12.7 to 42.5p

- 15 -
16
New Dividends from 2005/06

• 9.1 compound annual growth achieved since 2000
• New higher base for future dividend growth
• At least 4 real growth per annum to 2008
• Sustained real growth thereafter

- 16 -
17
Ian MarchantChief Executive
- 17 -
18
D is for Delivery

• Operational excellence
• Investment programme
• Benefits from acquisitions

achieving sustained real growth in the dividend
- 18 -
19
Delivered in 2004/05 Energy Systems

• 760m investment programme completed
• 8m IIP income
• Excellent storm performance
• Good outcome to DPCR4
• frontier efficiency confirmed
• pension deficit recovery
• Shetland pass-through achieved
• Agreement to invest in gas DNs

- 19 -
20
For delivery in 2005/06Energy Systems

• Keep the lights on
• Efficient investment of increased capex
• Focus on IIP targets
• Planning application for transmission upgrade
• Complete gas DN acquisition
• Complete phase 1 of gas DN plan

- 20 -
21
Delivered in 2004/05Generation

• Full-year Medway benefits
• FFF acquisition
• 20 per kilowatt
• major portfolio benefits
• significant cash generation
• Fife investment
• ROC-able hydro and wind
• 395MW operating
• 171MW in refurbishment or construction
• additional 318MW in planning process

- 21 -
22
For delivery in 2005/06Generation

• BETTA benefits
• Biomass investment
• FGD investment decision
• ROC-able hydro and wind
• 566MW operating
• 225MW with consent
• more new schemes submitted for consent

- 22 -
23
Delivered in 2004/05Supply

• Six million customers achieved
• Lowest cost to serve
• Responsible pricing
• Fewest customer complaints
• New product development

- 23 -
24
For delivery in 2005/06Supply

• Continuing customer gains
• Lower customers losses
• Fewer customer complaints
• Responsible pricing continued
• Energy Services launched
• bringing together contracting, connections,
  retail and micro-generation
• targeting public sector and commercial customers

- 24 -
25
Delivered in 2004/05Contracting and Connections

• New PFI contracts successfully started
• Eastern Contracting acquired
• MOD Prime contract won
• Expansion into healthcare
• Developing Connections business

- 25 -
26
For delivery in 2005/06Contracting and
Connections

• Integration of Eastern Contracting
• Successful start to Prime
• New long-term contracts
• Growing presence in healthcare
• Gas network opportunities

- 26 -
27
Delivered in 2004/05Gas Storage and Telecoms

• Higher value contracts at Hornsea
• Leaching started at Aldbrough
• Telecoms synergies realised
• Telecoms sales back on track

- 27 -
28
For delivery in 2005/06Gas Storage and Telecoms

• More higher value contracts at Hornsea
• Nine wells drilled at Aldbrough
• Growing telecoms profitability
• More major corporate customers

- 28 -
29
All in the Delivery

• Maintaining and investing in energy networks
• Adding to the generation portfolio
• Growing the supply business
• Developing Contracting and Connections
• Investing in Gas Storage
• Increasing Telecoms profitability

- 29 -
30
D is also for Dividends

• 12.7 growth in 2004/05
• New, higher base for future growth
• At least 4 real growth to 2007/08
• Sustained real growth thereafter

and for Doing what it says on the tin
- 30 -
31
Preliminary Results2004/05

• 18 May 2005

- 31 -