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Last Updated: Tuesday, 3 June, 2003, 19:01 GMT 20:01 UK
British Energy deep in the red
British Energy
BE power plant: Not so valuable after all
Struggling electricity provider British Energy has crashed to a multi-billion pound loss after slashing the book value of its power plants.

The company said pre-tax losses for the year to late March came in at 4.3bn, compared with a loss of 493m one year earlier.

A 3.7bn cut in the book value of its power plants - intended to reflect a drop in their market price following a slump in the wholesale power market last year - accounted for the bulk of the loss.

Excluding asset write-downs, the firm lost 130m, compared with a profit of 42m one year earlier.

The company added that while "significant progress" had been made in talks with creditors aimed at putting it back on a firm financial footing, the deal remained "subject to a large number of significant uncertainties".

Insolvency risk

"If for any reason British Energy is unable to implement the restructuring, it may be unable to meet its financial obligations as they fall due, in which case it may have to take appropriate insolvency proceedings," the company said in a statement.

The restructuring exercise is expected to leave the company largely in the hands of its creditors, with existing shareholders left with little or nothing.

British Energy, which supplies a fifth of the UK's electricity, was saved from financial collapse by a controversial 650m loan from the government last year.

The European Commission is investigating whether the bailout complies with EU rules on state aid to industry.

The company's financial crisis was triggered by rising debts and a slump in electricity prices following a liberalisation of the wholesale power market last year.

The firm was at a particular disadvantage because, unlike other operators, it did not have a retail arm which would have allowed it to make up profits.

Early warning

When British Energy released its interim results last December it hinted that the 4.44bn book value of its assets might be too high.

"The directors have significant doubt as to whether the assumptions and estimates used to determine the carrying values of the company's UK generation fixed assets and stocks are now the most appropriate," the firm said at the time.

The company confirmed on Tuesday that it was suspending its annual payment to shareholders.

British Energy shares closed down 0.45 pence at 4.35p.




SEE ALSO:
UK extends British Energy loan
07 Mar 03  |  Business
British Energy saved from the brink
14 Feb 03  |  Business
Q&A: British Energy's crisis
28 Nov 02  |  Business


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