Liquidity, resources and capital expenditure
- Cash flow
- Equity shareholders’ funds
- Capital expenditure
- Net debt and gearing
- Cash flow forecasting
- Credit facilities and unutilised Commercial Paper and Medium Term Note Programmes
Cash flow
Net cash inflow from operations before exceptional items was £3,103 million in 2004/05 compared with £3,058 million in 2003/04 and £3,154 million in 2002/03. The increase of £45 million from 2003/04 to 2004/05 primarily reflected reduced UK pension payments compared with 2003/04. The reduction in 2003/04 compared with 2002/03 of £96 million reflected higher US related pension payments, adverse exchange rate variances and higher commodity costs, partially offset by other favourable movements in working capital.
Exceptional cash outflows, mainly relating to operating exceptional items, were £194 million, £248 million and £328 million in 2004/05, 2003/04 and 2002/03 respectively. Taking these into account, net cash inflow from operations in 2004/05 was £2,909 million compared with £2,810 million in 2003/04 and £2,826 million in 2002/03.
Payments to providers of finance, in the form of net interest and dividends, totalled £1,386 million in 2004/05 compared with £1,252 million in 2003/04 and £1,483 million in 2002/03. Net interest cash outflows fell from £901 million in 2002/03 to £686 million in 2003/04 and increased to £755 million in 2004/05. The reduction in 2003/04 reflected the beneficial impact of refinancing debt, lower short-term interest rates and the weaker US dollar. The increase in 2004/05 compared with 2003/04 related primarily to the refinancing of debt during the year.
Net corporate tax payments amounted to £150 million in 2004/05 compared with £18 million in 2003/04 and £112 million in 2002/03.
Net corporate tax payments in 2004/05 were higher than in 2003/04, primarily because tax payments in 2003/04 were reduced as a result of the cessation of trade of a subsidiary company, 186k Limited, which reduced corporation tax payments and a repayment of corporate tax arising from the settlement of tax liabilities of around £44 million. For these reasons corporate tax payments in 2003/04 were lower than those in 2002/03.
Purchases of tangible and intangible fixed assets net of disposal proceeds absorbed cash of £1,262 million compared with £1,254 million in 2003/04 and £1,407 million in 2002/03.
The increase of £8 million in purchases of tangible and intangible fixed assets net of disposal proceeds from 2003/04 to 2004/05 reflected a reduction in cash outflows on capital expenditure of £46 million, offset by a £54 million reduction in cash proceeds from the sale of fixed assets, primarily property disposals. The reduction in capital expenditure related mainly to the UK electricity and gas transmission segment offset by an increase in capital expenditure on the Basslink interconnector.
The reduction of £153 million in purchases of tangible and intangible fixed assets net of disposal proceeds from 2002/03 to 2003/04 reflected lower purchases of fixed assets amounting to £118 million, primarily related to reduced capital expenditure by UK gas distribution and discontinued operations. This reduction was partially offset by increased purchases in relation to the construction of the Basslink interconnector and Isle of Grain LNG projects. In addition, there was an increase in disposal proceeds of £35 million, mainly linked to the sale of property. Discontinued operations capital expenditure for 2002/03 related primarily to 186k Limited and The Leasing Group plc, which were disposed of during 2002/03.
Cash outflows in 2004/05 relating to the acquisition of Group undertakings amounted to £1,151 million before taking account of cash acquired of £29 million, mainly relating to the acquisition of the UK operations of Crown Castle International Corp. There were cash outflows of £16 million to acquire investments compared with £26 million and £165 million in 2003/04 and 2002/03 respectively.
Cash outflows in 2002/03 included £153 million related to expected contractual funding obligations in respect of joint ventures.
Cash inflows from the disposal of investments in 2004/05 amounted to £8 million compared with £33 million in 2003/04 and £328 million in 2002/03. The 2002/03 inflow related primarily to the receipt of £157 million in respect of the full settlement of deferred payment arrangements arising from the sale of nuclear plant conducted before the completion of the acquisition of Niagara Mohawk, £53 million from the sale of other nuclear assets and £92 million from the sale of The Leasing Group plc.
During 2003/04, the Group terminated some cross currency swaps, resulting in a cash inflow of £148 million. As a result of this transaction, the underlying borrowing which had been hedged by these swaps was translated to sterling, at the prevailing spot rate, resulting in an increase in net sterling borrowing of £140 million. Consequently, the impact of the termination of cross currency swaps on net debt was insignificant.
During 2004/05 and 2003/04 we received cash of £13 million and £38 million respectively from the issue of ordinary share capital. During 2002/03, the Group purchased for cancellation 24.2 million shares resulting in a cash outflow of £97 million.
Equity shareholders’ funds
Equity shareholders’ funds at 31 March 2004 and 31 March 2003 have been restated from the amounts reported in last year’s Group accounts as a consequence of implementing FRS 20 ‘Share-based Payment’. Equity shareholders’ funds at 31 March 2004 of £1,213 million were restated to £1,221 million and at 31 March 2003 were restated from £1,113 million to £1,121 million.
Equity shareholders’ funds rose from £1,121 million at 31 March 2003 to £1,221 million at 31 March 2004 and to £1,359 million at 31 March 2005. These increases were mainly explained by the retained profit for the years to 31 March 2005 and 31 March 2004 of £177 million and £465 million respectively, partially offset by net foreign exchange adjustments amounting to £73 million and £417 million respectively, primarily related to the retranslation of US dollar denominated net assets and associated hedges.
Capital expenditure
Capital expenditure in 2004/05 was £1,431 million compared with £1,481 million in 2003/04 and £1,520 million in 2002/03. The decrease in 2004/05 compared with 2003/04 of £50 million reflected a reduction in capital expenditure in the UK electricity and gas transmission segment of £62 million and a reduction of £21 million within the UK gas distribution segment.
The total level of capital expenditure for continuing operations of £1,481 million in 2003/04 was higher than capital expenditure within continuing operations for 2002/03 by £56 million. This reflected higher capital expenditure: in constructing the Basslink interconnector and the Isle of Grain LNG import terminal; within US electricity and gas distribution; and within UK electricity and gas transmission. The higher capital expenditure was partially offset by a reduction in capital expenditure within UK gas distribution.
The Operating Review contains a discussion of any significant variance between years relating to capital expenditure by reporting segment and provides details of any material capital expenditure programmes.
