Note 2 – Segmental analysis

Segmental information is presented in accordance with the management responsibilities and economic characteristics of the Group’s business activities.

As a result of the acquisition of the UK operations of Crown Castle International Corp. (Crown Castle UK) as described in note 15, a new business segment has been presented. The results of Crown Castle UK have been combined with similar activities of the existing operations of the Group and presented as a new segment shown as ‘Wireless infrastructure’ below. The comparative numbers relating to this segment were previously reported within ‘Other activities’.

We have changed the segments in our US operations, combining our US electricity distribution and US gas distribution activities to form a new segment: ‘US electricity and gas distribution’. The Directors believe that their economic characteristics are similar as they receive revenues under similar regulatory schemes. We have also created a new ‘US stranded cost recoveries’ segment in order to enhance the visibility of this activity.

The following table describes the main activities for each business segment:

UK ele ctricity and gas transmission High-voltage electricity transmission networks and the gas National Transmission System in the UK
US electricity transmission High-voltage electricity transmission networks and management of electricity transmission operations for other utilities in the US
UK gas distribution The majority of Britain’s gas distribution system
US electricity and gas distribution Electricity and gas distribution in New York and electricity distribution in New England
US stranded cost recoveries The recovery of stranded costs from US customers as permitted by regulatory agreements
Wireless infrastructure Broadcast and mobile telephony infrastructure in the UK and US

‘Continuing operations – Other activities’ primarily relates to: UK based gas metering activities; our UK liquefied natural gas storage activities; the electricity interconnectors business; and Advantica, the energy technology and systems solutions business.

Included within the continuing operations of the UK gas distribution activity are amounts relating to four gas distribution networks that the Group has agreed to sell. These amounts have been disclosed in the analyses of continuing operations of Group undertakings below as ‘Existing businesses – businesses to be disposed’.

Discontinued operations include: the results of Citelec, an Argentinian joint venture, for all years presented and telecom joint ventures in 2003 which are included within the results of joint ventures; and the results of EnMO for 2004 and 2003 together with The Leasing Group and 186k Limited for 2003 which are included within the results of Group undertakings.

The Group assesses the performance of its businesses principally on the basis of operating profit before exceptional items and goodwill amortisation.

a) Turnover
   
 
Total
sales
2005
 
£m		  
Sales
between
businesses
2005
 
£m		  
Sales
to third
parties
2005
 
£m		  
 
Total
sales
2004
(restated)
£m		  
Sales
between
businesses
2004
(restated)
£m		  
Sales
to third
parties
2004
(restated)
£m		  
 
Total
sales
2003
(restated)
£m		  
Sales
between
businesses
2003
(restated)
£m		  
Sales
to third
parties
2003
(restated)
£m
Turnover, including
 share of joint ventures’		                  
- continuing
 operations		 9,063 493 8,570 9,385 462 8,923 9,276 370 8,906
- discontinued
 operations		 13 – 13 181 – 181 679 19 660
Less: share of joint
 ventures’ turnover		                  
- continuing
 operations		 (49) – (49) (48) – (48) (73) – (73)
- discontinued
 operations		 (13) – (13) (23) – (23) (93) – (93)
Group turnover 9,014 493 8,521 9,495 462 9,033 9,789 389 9,400
Continuing operations                  
UK electricity and
 gas transmission		 1,930 37 1,893 1,867 35 1,832 1,893 29 1,864
US electricity
 transmission		 283 45 238 318 48 270 407 5 402
UK gas distribution 2,215 135 2,080 2,245 120 2,125 2,089 47 2,042
US electricity and
 gas distribution		 3,114 2 3,112 3,494 1 3,493 3,306 1 3,305
US stranded cost
 recoveries		 420 – 420 507 – 507 586 – 586
Wireless infrastructure 208 – 208 72 – 72 61 – 61
Other activities 844 274 570 834 258 576 861 288 573
  9,014 493 8,521 9,337 462 8,875 9,203 370 8,833
Discontinued operations – – – 158 – 158 586 19 567
Group turnover 9,014 493 8,521 9,495 462 9,033 9,789 389 9,400
UK     4,723     4,736     5,096
US     3,798     4,297     4,304
      8,521     9,033     9,400
Continuing operations of Group undertakings comprise:
Existing businesses                  
- businesses to be
 disposed		 1,102 73 1,029 1,115 63 1,052 1,031 24 1,007
- other 7,764 420 7,344 8,222 399 7,823 8,172 346 7,826
Acquisition
 (Crown Castle UK)		 148 – 148 – – – – – –
  9,014 493 8,521 9,337 462 8,875 9,203 370 8,833

The analysis of turnover by geographical area is on the basis of origin. Turnover on a destination basis would not be materially different. There is no turnover between the UK and US geographical areas.

Approximately 14% (2004: 15%) of the Group’s turnover for the year ended 31 March 2005 amounting to approximately £1.2bn (2004: £1.4bn) derives from a single customer, the Centrica Group. The majority of this turnover is in the UK gas distribution segment with lesser amounts in other activities and the UK electricity and gas transmission segment.

b) Operating profit
  Operating profit
    Before exceptional items
and goodwill amortisation		   After exceptional items
and goodwill amortisation
 
 
 		   2005
 
£m		 2004
(restated)
£m		 2003
(restated)
£m		   2005
 
£m		 2004
(restated)
£m		 2003
(restated)
£m
Group undertakings - continuing operations                
UK electricity and gas transmission   809 759 809   807 745 763
US electricity transmission   123 133 128   102 105 103
UK gas distribution   570 716 547   390 627 436
US electricity and gas distribution   374 362 401   286 194 290
US stranded cost recoveries   121 134 170   121 136 172
Wireless infrastructure   46 6 (23)   10 (6) (50)
Other activities   162 96 147   129 29 52
    2,205 2,206 2,179   1,845 1,830 1,766
Group undertakings - discontinued operations   – – (26)   – – (194)
Operating profit of Group undertakings   2,205 2,206 2,153   1,845 1,830 1,572
Joint ventures - continuing operations (electricity activities)   6 7 9   6 7 9
Joint ventures - discontinued operations   1 – (14)   1 – 115
Operating profit/(loss) of joint ventures   7 7 (5)   7 7 124
Total operating profit   2,212 2,213 2,148   1,852 1,837 1,696
UK   1,583 1,576 1,444   1,336 1,416 1,011
US   623 631 704   510 415 549
Latin America   1 – (7)   1 – 128
Rest of the World   5 6 7   5 6 8
    2,212 2,213 2,148   1,852 1,837 1,696
Continuing operations of Group undertakings comprise:                
Existing businesses                
- businesses to be disposed   345 407 326   271 351 269
- other   1,821 1,799 1,853   1,558 1,479 1,497
Acquisition (Crown Castle UK)   39 – –   16 – –
    2,205 2,206 2,179   1,845 1,830 1,766
c) Information relating to businesses to be disposed

Included within the continuing operations of the UK gas distribution activity are the following amounts relating to four gas distribution networks that the Group has agreed to sell:

 
 		   2005
£m		   2004
£m		   2003
£m
Turnover   1,102   1,115   1,031
Depreciation   (97)   (98)   (90)
Payroll costs   (132)   (133)   (152)
Other operating charges            
- Purchases of gas   (28)   (20)   (25)
- Rates and property taxes   (84)   (82)   (89)
- Replacement expenditure   (235)   (201)   (199)
- Exceptional operating items   (74)   (56)   (57)
- Other non-;exceptional operating charges   (181)   (174)   (150)
    (602)   (533)   (520)
Operating profit   271   351   269

The above results include shared service centre expenditure in 2005 of £27m (2004: £27m; 2003: £28m) that will continue to be recharged for a period of 18 months following completion of the sales.

d) Total and net assets
    Total assets   Net assets
 
 
 		   2005
 
£m		 2004
(restated)
£m		   2005
 
£m		 2004
(restated)
£m
Group undertakings - continuing operations            
UK electricity and gas transmission   6,448 6,284   5,735 5,472
US electricity transmission   1,469 1,539   1,439 1,465
UK gas distribution   5,167 4,928   3,559 3,403
US electricity and gas distribution   5,311 5,423   4,245 4,448
US stranded cost recoveries   2,311 2,598   1,693 1,834
Wireless infrastructure   1,462 156   1,215 103
Other activities   1,818 1,734   898 837
    23,986 22,662   18,784 17,562
Group undertakings - discontinued operations   – –   – (7)
Group undertakings   23,986 22,662   18,784 17,555
Joint ventures - continuing operations (electricity activities)   17 19   17 19
Unallocated   708 716   (17,410) (16,303)
    24,711 23,397   1,391 1,271
UK   14,494 12,846   11,053 9,565
US   9,229 9,679   7,499 7,854
Rest of the World   280 156   249 155
Unallocated   708 716   (17,410) (16,303)
    24,711 23,397   1,391 1,271
Continuing operations of Group undertakings comprise:            
Existing businesses            
- businesses to be disposed   2,888 2,707   2,075 1,903
- other   19,799 19,955   15,611 15,659
Acquisition (Crown Castle UK)   1,299 –   1,098 –
    23,986 22,662   18,784 17,562

The analysis of total assets and net assets by business segment includes all attributable goodwill and excludes inter—business balances. Unallocated total assets include current asset investments, cash, tax and taxation related regulatory assets. Unallocated net liabilities include net borrowings, tax, interest, dividends and tax related regulatory assets.

e) Other segmental information
    Capital expenditure   Depreciation and amortisation
 
 
 		   2005
 
£m		 2004
(restated)
£m		 2003
(restated)
£m		   2005
 
£m		 2004
(restated)
£m		 2003
(restated)
£m
Group undertakings - continuing operations                
UK electricity and gas transmission   522 584 567   279 276 243
US electricity transmission   74 53 49   61 67 71
UK gas distribution   272 293 380   191 195 185
US electricity and gas distribution   234 277 249   254 279 290
US stranded costs recoveries   – – –   136 118 103
Wireless infrastructure   19 2 7   54 9 18
Other activities   310 272 173   157 173 152
    1,431 1,481 1,425   1,132 1,117 1,062
Group undertakings - discontinued operations   – – 95   – – 26
Group undertakings   1,431 1,481 1,520   1,132 1,117 1,088
UK   981 1,071 1,172   675 644 613
US   312 332 298   457 473 475
Rest of the World   138 78 50   – – –
    1,431 1,481 1,520   1,132 1,117 1,088
Continuing operations of Group undertakings comprise:                
Existing businesses                
- businesses to be disposed   152 168 211   97 98 90
- others   1,265 1,313 1,214   989 1,019 972
Acquisition (Crown Castle UK)   14 – –   46 – –
    1,431 1,481 1,425   1,132 1,117 1,062

Capital expenditure comprises additions to tangible and intangible fixed assets (excluding goodwill) amounting to £1,431m (2004: £1,479m; 2003: £1,519m) and £nil (2004: £2m; 2003: £1m) respectively.

Depreciation and amortisation includes depreciation of tangible fixed assets, amortisation of intangible fixed assets and amortisation of regulatory assets.

Depreciation and amortisation includes amortisation of goodwill of £109m (2004: £99m; 2003: £102m). Amortisation of goodwill has arisen in the following segments: US electricity transmission £18m (2004: £19m; 2003: £21m); US electricity and gas distribution £68m (2004: £75m; 2003: £81m); Wireless infrastructure £23m (2004: £4m; 2003: £nil); and Other activities £nil (2004: £1m; 2003: £nil).

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