Financial performance
The results for non-regulated businesses and other activities for the years ended 31 March 2009, 2008 and 2007 were as follows:
| Years ended 31 March | |||
|---|---|---|---|
| 2009 £m |
2008 £m |
2007 £m |
|
| Revenue | 719 | 642 | 567 |
| Other operating income | 31 | 67 | 71 |
| Operating costs excluding exceptional items | (685) | (580) | (505) |
| Adjusted operating profit | 65 | 129 | 133 |
| Exceptional items | (64) | (57) | (1) |
| Operating profit | 1 | 72 | 132 |
2008/09 compared with 2007/08
The principal movements between 2008/09 and 2007/08 can be summarised as follows:
| Revenue and other operating income £m |
Operating costs £m |
Operating profit £m |
|
|---|---|---|---|
| 2007/08 results | 709 | (637) | 72 |
| Add back exceptional items | – | 57 | 57 |
| 2007/08 adjusted results | 709 | (580) | 129 |
| Exchange movements | 26 | (26) | – |
| 2007/08 constant currency results | 735 | (606) | 129 |
| Metering | 7 | 22 | 29 |
| Property | (49) | (43) | (92) |
| Grain LNG | 33 | (24) | 9 |
| US non-regulated businesses | 42 | (44) | (2) |
| Other activities | (18) | 10 | (8) |
| 2008/09 adjusted results | 750 | (685) | 65 |
| Exceptional items | – | (64) | (64) |
| 2008/09 results | 750 | (749) | 1 |
Revenue primarily increased due to a full year of contribution from the US non-regulated businesses acquired with KeySpan, a £33 million increase in revenue from Grain LNG at £74 million in 2008/09 compared with a £26 million increase in 2007/08 due to movements in exchange rates. The increased revenue from Grain LNG is due to a full year contribution from phase I of the facility and three months contribution from phase II. These increased revenues were partially offset by a decrease of £49 million in revenue and other operating income in our property business. This resulted from a decrease in the level of property sales in 2008/09. The reduction in property sales reflects the significant decrease in property prices during 2008/09. Due to the current state of the property market, we do not anticipate continuing sales of our non operational sites that are surplus to our requirements in the near-term and believe that at present we can derive greater shareholder value by their retention.
Operating costs excluding exceptional items increased by £105 million in 2008/09 compared with 2007/08 primarily reflecting an increase resulting from a full year of contribution from the US non-regulated businesses acquired with KeySpan. In addition, Property and Grain LNG were £43 million and £24 million higher respectively. This was partially offset by a fall in metering costs.
Contributions to adjusted operating profit include: £133 million (2007/08: £104 million) from Metering; £1 million (2007/08: £93 million) from Property; £21 million (2007/08: £12 million) from Grain LNG; and a loss of £4 million (2007/08: loss £2 million) from US non-regulated businesses.
Exceptional items of £64 million in 2008/09 primarily relates to our property business that recognised a £24 million exceptional charge relating to significant changes to our environmental provision, and £40 million relating to restructuring charges incurred in the US non-regulated businesses and corporate activities. The environmental charge arose as a result of an increase in estimated site remediation costs following changes in landfill tax legislation in the UK and the significant reduction in the discount rate driven by a fall in the risk free rates in light of the current instability in the financial markets. The real discount rate used in the UK decreased from 2.5% in 2007/08 to 2.0% in 2008/09.
2007/08 compared with 2006/07
The principal movements between 2007/08 and 2006/07 can be summarised as follows:
| Revenue and other operating income £m |
Operating costs £m |
Operating profit £m |
|
|---|---|---|---|
| 2006/07 results | 638 | (506) | 132 |
| Add back exceptional items | – | 1 | 1 |
| 2006/07 adjusted results | 638 | (505) | 133 |
| Metering | 14 | (13) | 1 |
| Property | – | 7 | 7 |
| Grain LNG | 3 | – | 3 |
| Advantica | (37) | 34 | (3) |
| US non-regulated businesses | 49 | (51) | (2) |
| Fulcrum and other activities | 42 | (52) | (10) |
| 2007/08 adjusted results | 709 | (580) | 129 |
| Exceptional items | – | (57) | (57) |
| 2007/08 results | 709 | (637) | 72 |
Revenue and other operating income from non-regulated businesses and other activities increased by £71 million from £638 million in 2006/07 to £709 million in 2007/08. The principal reasons for this increase were the inclusion of £49 million with respect to seven months of non-regulated businesses acquired with KeySpan and an increase of £14 million in our metering businesses, reflecting portfolio growth at OnStream. Increased revenue for our other operations principally relates to Fulcrum. This was partially offset by a £37 million reduction in revenue following the disposal of Advantica in August 2007.
Operating costs excluding exceptional items were £75 million higher in 2007/08 compared with 2006/07, comprising an increase of £51 million from non-regulated businesses acquired with KeySpan and an increase of £13 million in our metering businesses as a result of increased volumes, together with £52 million from Fulcrum and other activities, partially offset by a reduction in costs following the disposal of Advantica of £34 million.
Contributions from non-regulated businesses to adjusted operating profit comprised £104 million (2006/07: £103 million) from Metering; £93 million (2006/07: £86 million) from Property; £12 million (2006/07: £9 million) from Grain LNG; a £1 million loss (2006/07: profit £2 million) from Advantica and a loss of £2 million (2006/07: n/a) from US non-regulated businesses acquired with KeySpan.
Exceptional items of £57 million in 2007/08 includes £44 million arising from an increase in the provision for environmental remediation of historically contaminated sites in the UK following a review conducted during the year, £15 million relating to costs incurred with respect to the potential disposal of the UK property business and £4 million of restructuring costs, partially offset by a £6 million gain on the disposal of Advantica. This compared with £1 million in exceptional items in 2006/07. As a consequence, adjusted operating profit excluding exceptional items, for other activities decreased by £4 million and operating profit decreased by £60 million.