British Energy - production, margins, profits, down.

British Energy have produced disastrous Q1 08/09 results today - which must have affected EDF's disinterest in moving ahead on a take over - although ever optimistic CEO Bob Coley does say, "Advanced discussions continue in connection with a potential offer " and in a BBC "Today" interview this morning claims they are "uniquely" placed for the new build as they own suitable sites for Gordon's nuclear "renaissance".

He also said that it would be at least 3 years before the planning process for building could start.

Electricity output down 26%

Electricity output from the nuclear stations was down 26% from 13 Tw last year to 9.5 Tw this year , total output only dropped to 11.4 Tw from 13.0 Tw as the Eggborough coal fired plant doubled production (using very expensive imported coal) from 0.8Tw to 1.9 Tw hrs - a drop of 18% . Total output in Q1 07/08 was 14TWh which had dropped 18% from 17TWh in Q1 06/07. This suggests Total output this year will be probably 46Tw a drop of 12 Tw (22%) from Last year

Earnings per share will be more than halved this year

The result of this reduced output and increased costs is largely due to the Boiler Closure Unit (BCU) outages at Hartlepool and Heysham 1 , Profits adjusted EBITDA is £129m, down from £253m from Q1 07/08 . To put this in context Adjusted EBITDA was £1,221 Mn in FY 06/07 and was cut (-28%) to £882 Mn in FY 2006/07 - so they will be lucky if it remains in the range £450-500 Mn this year.

When this is taken down to Adjusted Earnings per share it turns out at 2.9p for Q1 this year and 8.9p last year. Total Annual Adjusted Earnings per share were 48.2 p in FY 06/07 and 29.6 p in FY 07/08 - so they will be lucky if it remains in the range of 10p per share this year.

Operating margins more than halved

The sales of energy showed ;
1. Realised price was £45.7/MWh for the period, up £4.9/MWh (12%) from £40.8/MWh in the comparable period
2. Unit operating cost increased to £39.6/MWh for the period up £12.72 (47%) from £27.0/MWh in the comparable period
3. Operating margin decreased to £6.1/MWh from £13.8/MWh in the comparable period a drop of 56%

Going forward, Contracts are in place are 42.2TWh at an average price of £47/MWh £32/MWh. The capped contracts are for delivery of approximately 5TWh per annum up to March 2011

In addition, contracts are in place for approximately 33.3TWh £42/MWh excluding the impact of capped price contracts at around £33/MWh

So there is little prospect that the average realised price of £45.7 /MWh is going to rise much, and there is little prospect that in this financial year that nuclear production will be above 38Tw + coal fired 7.5Tw = 45.5 Tw compared with 58.4 Tw in both the last 2 financial years. In the last two Financial years the average realised price was £40.7/MWh in 07/08 and had dropped 7% from £ 44.2 / MWh in 06/07. So the selling pricetoday is only 3.2% up on 27 months ago. aperiod when retail sales prices have more than doubled.


BE currently have stocks and contracts in place which provide nearly 100% coverage of anticipated requirements until 31 March 2011. The current market price of uranium has increased significantly from the level at which we entered into these existing fuel agreements.

Existing stocks and contracts provide a fuel cost advantage of approximately £115m per annum, based on nuclear output for the financial year 2008/09. It is anticipated that this fuel cost advantage will gradually reduce between the financial years ending 31 March 2012 and 31 March 2017. Shrewd buying or our old pal serendipity ?

With current levels of building there is little doubt that uranium demand will not decrease significantly - and new sources donot appear to be being discovered.


BCU project costs at Heysham and Hartlepool have soared 130% in 6 months

Total project costs at Hartlepool and Heysham in financial year 2008/09 now expected to be around £115m (up from £50m), driven by increased costs for inspections and increased costs of design, fabrication and installation of modifications.

"The cost of the remedial engineering work is not expected to exceed
£50Mn,incurred in financial year 2008/09."

See BE website statement Hartlepool and Heysham 1 Boiler Closure Unit (‘BCU’) update 18th January 2008 - so 8 months later costs have risen 130% and work hasn't been finished - more costs lurking ?

Regulatory approval to commence installation of circumferential bands at Heysham and Hartlepool is expected within the next few days. More than 1,200,000 man hours have been spent on the project to date which is on track to deliver return to service in the third quarter of this financial year. The faults in the BCU were discovered in October / November 2007.

Make of this waht you will..." In the event of any additional slippage in return to service timing, incremental costs may be expected to arise." ... from wher we are sat it looks like forewarning and arse covering ofexpected slippage and cost increases.... we did warn you etc.,

Some good news - Hinkley and Hunterston due for restart after planned outages

Hinkley Point B Reactor 3 returned to service following successful planned inspection outage. The Hunterston B Reactor 4 restart process has been initiated. Both these plants have been given Five year plant life extensions to 2016 - their planned closure was 2011 when constructed .

Conclusion

It is increasingly evident that British Energy prospects for the next 12 - 24 months are going to be increasingly unprofitaable. No explanation has been provided for the Sizewell outage that ocurred and led to blackouts in the South East.

On any rational view the company will struggle to produce both electricity and profits so EDF are being asked to buy the company just for the "unique" and "pivotal" position they have for opening new nuclear plant.

Such advantages are not unique and at £12Bn are extraordinarily costly.
See Annual report FY 07/08
Q1 report 08/09 published today online