PowerGen PLC Preliminary Unaudited Results For The Nine Months Ended January 3, 1999.

LONDON--(BUSINESS WIRE)--March 4, 1999--PowerGen plc (NYSE:PWG), the international power company, today announced its preliminary unaudited results for the nine months ended January 3, 1999.

-- East Midlands Electricity acquisition achieves strategic goal and

consolidation for the future

-- Dividend up 11% on full year equivalent basis

-- Purchase of Yorkshire CoGen expands PowerGen CHP business

-- International business expanded in South Korea and GTEC

commissioned in India -0-

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Financial Performance    $m(a)   9 months to   9 months to   12 months to
(unaudited)                    December 1998 December 1997(b) March 1998(b)
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Turnover                3,892   (pound)2,344m (pound)2,041m (pound)2,932m
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Profit, before tax
  and exceptional
  items                   485     (pound)292m   (pound)376m   (pound)579m
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Profit, before tax,
  exceptional items
  and goodwill
  amortization            531     (pound)320m   (pound)376m   (pound)579m
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Earnings per share,
  before windfall tax,
  exceptional items
  and goodwill
  amortization           64.4(cents)    38.8p         44.3p         68.1p
----------------------------------------------------------------------
Dividend per share         40(cents)    24.1p           n/a         29.0p
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(a) US dollar equivalents are provided for reader convenience at

the January 3, 1999 rate of(pound)1 = $1.6604 (b) Restated for FRS12

PowerGen is reporting 9 month figures to December 1998 as a result of the change in year end from March to December. In order to provide a better insight into the results, the figures shown include a comparison with the same nine month period in 1997, extracted from the Group's unaudited management accounts.

PowerGen Chairman, Ed Wallis, said:

"Strategically, PowerGen made real progress in 1998. The highlight was the acquisition of East Midlands Electricity which was the culmination of four years of concerted effort and strategic focus. PowerGen is now a vertically integrated company with opportunities to grow the business in generation, distribution and supply which has significant business and staff motivational benefits.

"The solid financial position we reported for the first six months was eroded during the last quarter of 1998. In the UK, where the majority of our earnings streams are generated, East Midlands Electricity performed well. The UK generation business was on track in the first half of the year despite a major breakdown at Rye House and the ending of the coal backed contracts, but it was held back significantly in the last three months of 1998. This was due to record high competitor plant availability and low capacity payments primarily caused by the mild weather. The impact of these factors in December alone reduced expected profits by some (pound)40m. High plant availability and low capacity payments continued into January and February of the current year.

"Turnover for the 9 months was (pound)2.3bn, which was (pound)300m higher than the equivalent period for last year, and included (pound)523m from East Midlands Electricity following its acquisition on July 27, 1998.

"Profit before tax, exceptional items, and goodwill amortization was (pound)320m and earnings per share, on a similar basis, were 38.8p. After (pound)28m of goodwill amortization, profit before tax was (pound)292m.

"The exceptional item of (pound)537m included (pound)535m paid to re-negotiate the terms of the gas supply contracts for our Connah's Quay power station, which will reduce future gas costs by (pound)60m per annum.

"There was a net tax credit of (pound)89m mainly due to the tax benefit of (pound)158m recognized in respect of the gas contract renegotiation payment. Without this the effective tax rate on pre-exceptional profits, before goodwill amortization, was 21.6%. After goodwill and exceptionals, the unadjusted headline loss per share was 24.1p.

"The Board is recommending a final dividend for the period of 14.1p per share, making the total dividend 24.1p per share which represents an increase of 11% on a full year basis compared with last year. Subject to approval at the Annual General Meeting on May 11, 1999, the final dividend will be paid on May 13, 1999 to shareholders on the record on April 6, 1999.

"The acquisition of East Midlands Electricity in July was approved by Government in September, subject to agreement of appropriate undertakings, and we were then able to take full managerial control. Since then the process of bringing together the operations of PowerGen and East Midlands Electricity has continued. East Midlands Electricity contributed operating profits of (pound)87m, before goodwill amortization of (pound)28m, in the five month period to December 1998.

"A condition of Government approval for the acquisition of East Midlands Electricity was that we would dispose of 4,000 MW of coal fired plant. This process is well under way and we anticipate completing the disposal of our Fiddler's Ferry and Ferrybridge power stations at the end of April in line with Government requirements. In the full year to March 1998 the two stations being divested made an operating profit before depreciation of (pound)143m. There will be a loss of generation income as a result of these disposals which it is anticipated will not be fully offset by the interest saved from the proceeds of the sale. We estimate some (pound)50-60m of pre-tax profit will be lost on a full year basis, and market share will fall to below 14% by the end of 2000.

"PowerGen expanded its CHP interests in December by acquiring further assets for (pound)95m. This has considerably expanded our interests in CHP at a time when Government policy is actively promoting investment in CHP projects.

"On the international side, progress continues with the construction of power stations in Portugal, Hungary and Indonesia. In December we finished the commissioning of our first greenfield site, GTEC in Gujarat, India which is now contributing to profits. This is the first IPP to commission in India and we see this investment providing a good base for growing a business in that country. Since the year end, we have also signed an agreement with the LG Group in Korea, to acquire a 49.9% interest in the construction of a 528 MW power station in the south of the country.

"We will continue to build on our presence in a number of markets with a view to moving towards a vertically integrated electricity and gas model where achievable. We also continue to seek opportunities to enter the de-regulating US market."

REVIEW OF OPERATIONS

UK Electricity & Gas

Overall, UK operations, excluding East Midlands Electricity, saw operating profit reduce from (pound)392 million to (pound)340 million, in the nine month period, mainly due to the loss of the coal backed franchise contracts, lower volumes and prices, and the weather.

Generation

For the nine month period as a whole, demand for electricity in England and Wales increased by 2.3 per cent to 218 TWh.

Although market demand was up, prices continued their downward trend. Demand weighted pool purchase price fell 4 percent to (pound)24.41/MWh for the nine months compared to the same period last year, while demand weighted system marginal price fell 5 percent to (pound)22.90/MWh. However, capacity payments (LOLP) increased slightly to (pound)7.90/kW from (pound)6.17/kW.

Unseasonable weather conditions impacted in two ways. During the cold summer electricity demand increased at a time when a number of competitor plant were unavailable, resulting in higher prices. However, during the important last three months of 1998 the relatively low seasonal demand combined with record high plant availability. This led to significantly lower pool prices together with lower LOLP which was down 43% to (pound)3.32/kW for this period.

Output from PowerGen's coal-fired power stations increased but this was offset by Rye House's breakdown. As a consequence gas generation was 3.6 TWh lower than forecast. Overall, PowerGen's generation output was 39.6 TWh, down 2.0 TWh on the same period last year. Market share fell to 18.2 percent from 19.5 percent.

PowerGen North Sea Ltd (PGNS)

PGNS, the upstream gas and oil business was sold at the end of November 1998 for (pound)248 million in cash. Prior to the sale PowerGen agreed a 37 percent reduction in the price of gas supplied to its Connah's Quay power station by PGNS. As a result PowerGen's on-going gas costs have been reduced by an estimated (pound)6 million per annum.

Combined Heat and Power (CHP)

PowerGen added to its successful, organically grown, CHP business in December with the acquisition of 232 MWe of contracted projects from Yorkshire Electricity for (pound)95 million. The acquisition complements PowerGen's existing business and reinforces its commitment to this part of the market. The CHP business is now one of the largest in the UK, and when all the projects are operational its capacity will be equivalent to 1.5% of the UK generation market. This is particularly important as generation market share declines.

Distribution

The distribution operation transports over 25TWh of electricity per annum.

Distribution is playing a significant part, strategically and financially, in the development of the Group. It provides a steady revenue stream to replace falling earnings from generation while adding expertise to extend the Group's range of international development opportunities.

Achieving world's best practice will involve major restructuring and improvements in performance are essential to take the business forward. Improvements identified include centralizing the networks and construction management activities and establishing a process based organization with competitive service provision.

Within metering services PowerGen expects to see a competitive market place after April 2000 and the company is currently assessing how the different parts of metering services will best serve its requirements for the future.

Retail

The objectives in this market are to retain existing customers and to win profitable new ones. Offering both gas and electricity is helping achieve these objectives.

Electricity

PowerGen continued to maintain its number one position supplying 17,500 industrial and commercial customer sites with an annualized volume of 22 TWh.

The first tranche of the competitive domestic electricity market in the East Midlands Electricity region successfully opened up on December 31, 1998. To date the new systems are proving to be both reliable and efficient.

Gas

PowerGen supplied 20,000 industrial and commercial customer sites with an annualized volume of 17.6 TWh. The number of domestic customers is also increasing with more than 200,000 being served directly through PowerGen's subsidiary, Sterling Gas.

Since the domestic markets have opened, East Midlands Electricity has attracted both electricity and gas customers from outside its region. Going forward, growth will be driven from integrated sales and marketing activities using the strength of the PowerGen brand.

PowerGen International

A major development in International markets over the last year has been the reduction in demand forecasts in developing countries. This has caused the level of opportunities for Independent Power Producer (IPP) development to reduce drastically. However, this has been replaced by the opportunities to buy operating plant as a consequence of a need to raise cash in those countries.

To spread risk PowerGen is now focusing on a limited number of countries within three distinct regions - Europe, India and Asia Pacific.

For the 9 months to December 1998, PowerGen International increased its trading profit contribution on the same period in 1997, from (pound)38 million to (pound)42 million, before deduction of development costs of (pound)15 million.

In Germany, MIBRAG and Schkopau continued to perform well and contributed (pound)19 million, in line with last year. PowerGen believes these are valuable assets and intends to develop its business as liberalization and the opening up of the German Energy Market provide opportunities to trade energy.

In India, PowerGen has successfully commissioned GTEC, a 655 MW gas fired plant in Gujarat in the North West its first operational greenfield site. The plant has performed well with output reaching 630 MW with 92% availability, and made a first time contribution of (pound)3m. Follow-on projects such as Bina, a 578 MW coal fired plant in Madhya Pradesh which is nearing financial close, and Rosa, together with a strong management team, give us confidence that we are on track to build a significant business in that country.

Yallourn in Australia achieved record plant output and high levels of coal production. Additionally the low Pool prices which have negatively impacted on profits for the past three years have begun to firm. As Yallourn is mostly contracted this does not impact immediately. However the contribution to group operating profit increased (pound)3 million to (pound)19 million.

In Hungary, Csepel 1 the 43 MW CHP is performing well and construction work has started on Csepel II, the 389 MW Combined Cycle Gas Turbine (CCGT) plant due to be commissioned in August 2000.

In Portugal, PowerGen's 990 MW Tapada CCGT plant is currently being commissioned and is scheduled for full commercial operation by mid 1999.

In Indonesia, Paiton is now 95% complete and on target for full commercial operation in early 2000. Construction costs are within budget and funding is now 90% complete.

The Far Eastern economic problems have affected PowerGen's Map Ta Phut project in Thailand which is expected to be delayed by up to four years with no contribution until 2006.

In January 1999 PowerGen announced its acquisition of a 49.9% stake in LG Energy, in South Korea, for an equity investment of (pound)38 million. The 528 MW open cycle plant which is being developed will be operational in June 2000 and will have a total cost of (pound)209 million. The project also has the scope to expand to 4,000 MW on the same site and gives PowerGen a presence in the South Korean electricity market as the Government considers plans for industry restructuring and privatization.

Copies of the slides being presented to analysts and institutional shareholders will be available later this morning on the PowerGen web site www.pgen.com.

PowerGen's ADR, equivalent to four ordinary shares, trades on the New York Stock Exchange under the symbol PWG. PowerGen's ordinary shares trade on the London Stock Exchange and prices may be accessed on Bloomberg under the symbol PWG LN, on the Reuter Equities 2000 Service under PWGN.L and on Quotron under PWGPU.EU.

For tabular results, please contact Taylor Rafferty Associates at 212-889-4350