Scottishpower 1999-00 Interim Results - Achieving Strategic Aims.

GLASGOW, Scotland--(BUSINESS WIRE)--Nov. 3, 1999--

ScottishPower (NYSE: SPI), a leading UK multi-utility, today announced its results for the six months ended September 30, 1999.

- Turnover up 6.0% to(pound)1,531 million ($2,522 million(1))

- Operating profit up(pound)1 million ($1.6 million) at(pound)325

million ($535 million)

- Profit before tax (before exceptionals) down(pound)7 million

($11.5 million) to(pound)240 million ($395 million)

- Earnings per share (before exceptionals) up 0.4% to 16.12p

(26.55(cent))

- Dividend per share up 10.3% to 8.27p (13.62(cent))

- PacifiCorp merger on track for completion in 1999

- Value to be realized through telecom flotation

- Making strong representations to Regulators regarding price

reviews

(1) US dollar equivalents are provided for reader convenience at the

September 30, 1999 exchange rate (pound)1=$1.6473

Murray Stuart, Chairman of ScottishPower, said:

"In the first six months of the year we have made good progress towards completion of the merger with PacifiCorp and have announced our intention to float a minority stake in our Internet and telecom business, under the new name Thus, while ensuring that strong operational performance in each of our businesses has been achieved.

The PacifiCorp transaction is progressing in line with our program. We have achieved the major regulatory approvals at both a federal level and in four of the six States and we continue to see opportunities to deliver value for shareholders from the integration of the two companies.

We continue to perform well in the fully competitive energy markets. We have gained over 1.3 million new contracts, while retaining approximately 90% of our domestic electricity customers. Our Dual Fuel offer has proved successful, with 465,000 customers welcoming the opportunity to receive a combined gas and electricity package. We now supply energy to 12% of the total UK domestic electricity market and to 5% of the total UK domestic gas market. Profits were restrained by continued investment in our growing Energy Supply and Internet and telecom businesses with the result that operating profit was up (pound)1 million at (pound)325 million. Profit, before tax and exceptional charges, of (pound)240 million, was (pound)7 million lower than in the equivalent period in the previous year. In the lead-up to the flotation of Thus, an exceptional charge of (pound)55 million has been taken as a result of costs, principally asset write-downs, arising from our withdrawal from fixed radio access and mobile telephony. This may be offset at the year-end by profit on the flotation. Earnings per share before exceptionals increased by 0.4% to 16.12p, while the interim dividend per share was increased by 10.3% to 8.27p.

The challenges ahead will be to deliver value from the integration of PacifiCorp into the ScottishPower group, to win new customers and sell more to existing customers in our Energy Supply business and to continue to realize efficiencies in our infrastructure businesses. Our financial performance to date is in line with our expectations. However, the UK utility market is becoming increasingly competitive and we are concerned that the Ofgem and OFWAT regulatory reviews, if implemented in their current forms, would have serious implications for customer service, infrastructure investment and shareholder returns. We are pressing both Regulators vigorously to reconsider their positions.

OVERVIEW

We have made good progress towards completion of the merger with PacifiCorp. We have attained all consents required in the UK, the major approvals at the US federal level, and approval from the States of California, Oregon, Washington and verbal approval from the State of Wyoming. We await only the final approval from the State regulatory commissions of Idaho and Utah, and we are therefore confident that the merger will be completed during 1999. We continue to see opportunities to enhance the efficiency of PacifiCorp's power operations and to deliver value for shareholders from the integration of the two companies.

Following a review of our Internet and telecom business, we are taking the opportunity to realize some of the value that has been created for shareholders by floating a minority stake in Thus, formerly ScottishTelecom, through an institutional offering of shares.

In the first half of the year each of our businesses has achieved good operational performance. As part of our continuing efficiency drive, we are intending to bring even greater focus to our energy and water businesses, to deliver ongoing cost savings across all our activities.

We have presented strong cases to Ofgem and OFWAT to demonstrate our proven record of improving efficiency and customer service while reducing prices to customers. We are concerned that the Ofgem and OFWAT regulatory reviews, if implemented in their current forms, would have serious implications for customer service, infrastructure investment and shareholder returns. We are pressing both Regulators vigorously to reconsider their positions.

FINANCIAL REPORT

Group turnover for the half year increased by (pound)87 million, or 6.0%, to (pound)1,531 million, including continued growth in our telecom business and increased domestic gas sales.

Turnover in the energy businesses increased by (pound)38 million, or 3.9%, compared to the equivalent period in the previous year. In electricity, turnover increased by (pound)22 million, with increased wholesale sales over the Anglo-Scottish interconnector and higher volumes distributed, only partly offset by the impact of supply competition in our home areas. Sales of gas increased by (pound)16 million to (pound)58 million due to further expansion of our customer base.

Southern Water reported sales of (pound)233 million, (pound)13 million higher than the first half of last year, reflecting new connections and higher tariffs to fund the capital expenditure program.

The telecom business, including our mobile telephone activities, produced total sales in the first half of (pound)125 million, up from (pound)99 million for the same period last year. External turnover increased by (pound)23 million to (pound)108 million, with improved performance in all business areas due to continued expansion, particularly in interactive solutions.

There was an increase in turnover in our Retail business, with sales up by (pound)20 million to (pound)147 million, due to new shop openings and a 7% increase in like-for-like sales.

Gross profit has increased by (pound)15 million to (pound)629 million. Turnover growth of (pound)87 million was partly offset by a related increase of (pound)72 million in cost of sales. The net increase in transmission and distribution costs and administration expenses reflects continued business growth, particularly in the telecom business, and increased depreciation as a result of the capital program across all our businesses.

Operating profit for the group increased by (pound)1 million to (pound)325 million, with increased profit from Power Systems and Southern Water offset by continued investment in our growing Energy Supply and telecom businesses. The increase in operating profit is after charging an additional (pound)17 million of costs, compared to the six months to September 1998, in respect of capturing new energy customers and maintaining the new systems required to operate in the competitive market. In addition, operating costs increased in the telecom business due to the cost of expanding the network and capturing new customers. These cost increases were in part offset by continuing efficiencies in our regulated businesses.

Generation's operating loss of (pound)9 million, consistent with performance in the first half of last year, reflects seasonal pricing in the electricity wholesale market. Sales volumes in the Scottish first-tier market were lower by 176 GWh due to the introduction of full competition in the domestic sector. England and Wales export volumes increased by 406 GWh to 2,838 GWh, as a result of increased interconnector availability. The Generation business continued to face downward pressure on prices, particularly in the industrial and commercial sectors.

Operating profit for Power Systems was (pound)125 million, up (pound)9 million on the first half of last year, with an increase of (pound)13 million in regulated revenues and further cost efficiencies of (pound)3 million, partially offset by increasing depreciation charges and the cost of operating new systems in the competitive market.

In Energy Supply, operating profit was (pound)10 million, (pound)4 million lower than in the equivalent period last year. First-tier operating profit was (pound)4 million lower, with the impact of competition on our market share and increased systems depreciation being the primary factors. Operating profit from second-tier sales was (pound)2 million higher with improved margins, in part from the recently opened domestic and small business markets, more than offsetting the capture costs of acquiring out-of-area electricity customers. The loss from gas and other energy sales increased by (pound)2 million to (pound)15 million, due to additional customer acquisition costs and the costs to service this growing business offset by increased gas margins. Gas margins increased year-on-year and the expected payback period for the group remains around eighteen months, with margin heavily weighted to the second half of the year.

In Manweb, operating profit reduced by (pound)3 million to (pound)65 million, with lower revenues in the distribution business and the impact of competition on home area market share in the supply business partly offset by continuing cost efficiencies. Manweb's distribution volumes fell as a result of increased embedded generation and lower consumption in the industrial sector.

Southern Water reported an operating profit of (pound)140 million for the half year, (pound)8 million higher than the equivalent period last year, reflecting tariff increases of (pound)15 million allowed under the regulatory formula and continued cost savings. Savings were partly offset by increases in operating costs attributable to the ongoing capital expenditure program and the cost of new obligations.

Consistent with its strategy for growth, the operating loss of (pound)10 million in the telecom business compares to a break-even position in the period to September 1998. Additional costs were incurred in extending our telecom network and from the ongoing customer capture program. Other cost increases arose as a result of higher depreciation charges and from developing Internet and interactive solutions for the growing customer base.

In our other businesses, Retail recorded an improved performance, with operating profit increased by (pound)4 million on the previous half year due to the contribution from new store openings and improved margins, achieved in the face of strong competition. The Contracting Services and Technology businesses continued to perform satisfactorily.

Exceptional charges of (pound)55 million to the profit and loss account have been recognized, made up of (pound)47.5 million due to the withdrawal from the use of fixed radio access telephony by the telecom business and a (pound)7.5 million charge representing impairment of goodwill in respect of our mobile telephony joint venture, which follows our announcement in August 1999 that we intended to dispose of the mobile business. It is anticipated that for the full year the exceptional charge will be offset by a gain arising from the partial flotation of Thus.

Net interest for the half year was (pound)86 million, an increase of (pound)9 million, reflecting the growth in debt associated with a higher level of capital investment, the payment, in December 1998, of the final installment of the windfall tax and the impact of the share buy-back program initiated as part of the PacifiCorp merger. Profit before tax and exceptional charges was (pound)7 million lower than in the equivalent period last year, at (pound)240 million. The tax charge of (pound)50 million represented an effective tax rate of 21.0% on profit before exceptional items, down from 23.0% in the period to September 1998 due to reductions in the headline corporation tax rate, announced in the March 1998 Budget, and the current mix of capital expenditure. Earnings per share, before exceptional charges, amounted to 16.12p, 0.4% ahead of last year, and our interim dividend will be 8.27p per share, an increase of 10.3%. The interim dividend will be paid on February 1, 2000 to shareholders on the register at the close of business on November 11, 1999.

Capital investment in the first six months of the year was (pound)343 million, up from (pound)331 million in the previous first half. Higher investment was undertaken in the first half of this year, particularly in Southern Water, with major wastewater treatment schemes being progressed at Portsmouth and Havant, the Seaclean Wight project on the Isle of Wight and at Littlehampton and Bognor. The telecom business continues to invest heavily in increasing network capacity and in the extension of infrastructure reach.

Free cash flow for the period was (pound)304 million, down (pound)38 million from the same period last year, due mainly to increasing interest payments. As a result of our increased capital expenditure program, the final payment of the windfall tax in December 1998 and the ongoing share buy-back program, gearing has increased to 151% at September 30, 1999, compared to 124% at March 31, 1999 and 110% at September 30, 1998. Gearing, excluding the impact of the share buy-back program, would have been 126%, almost unchanged from the year-end. Interest cover before exceptional items was 3.8 times in the six months to September.

BUSINESS REPORT

Energy Supply

The domestic gas and electricity markets are now fully open to competition and ScottishPower has established itself as a leading player in both of these markets. We are currently the third largest domestic gas supplier in the UK and have won more electricity customers than any of the other incumbent electricity suppliers. In total, we have gained more than 1.3 million new contracts for gas or electricity services and 465,000 customers have welcomed the opportunity to receive a combined gas and electricity package from ScottishPower. We have secured 12% of the UK domestic electricity market and 5% of the UK domestic gas market and we continue to make solid progress.

We have been successful in retaining approximately 90% of all domestic customers in what were our ScottishPower and Manweb franchise areas. We have developed new channels to market in the form of telesales and the Internet, being the first UK utility to offer Internet invoicing. Corporate customers have secure Internet access to their energy accounts and more than 10,000 sites are currently benefiting from this service.

During October, Ofgem published its initial proposals for the Supply Price Controls. The proposals are for a further two years of price restraint in the domestic market beyond April 2000 to provide price protection for customers until competition is more fully established. We understand the view that price restraints are required in markets which are not yet fully competitive. However, as a company committed to competition and active in the energy supply markets nationally, we are concerned that Ofgem's initial proposals represent a tightening of the price control which could significantly restrict the development of competition. We are currently in discussion with Ofgem over an appropriate level of price restraint which would ensure a balance between short-term customer benefits and the development of sustainable competition.

Generation

In response to the continuing downward pressure on electricity prices, the Generation business has made considerable progress in its efforts to secure cost efficiencies through targeted outsourcing, the rationalization of its support functions and the increased automation of our Longannet power station. We continue to achieve increased sales to the wholesale market in England and Wales, through the Anglo-Scottish interconnector. However the introduction of full competition has reduced generation volumes in the Scottish first-tier market.

We continue to pursue synergies between the generation and gas supply businesses and in September 1999 we started to inject gas into our Hatfield Moors underground gas reservoir, which will provide storage sufficient to meet the peak demand of some 450,000 customers. This site affords us flexibility in the gas business, whereby we can choose to store gas at times when demand, and hence prices, are low. Equally, when energy demand is high, we can release gas from storage to sell directly or burn in our generating stations. In line with our strategy to expand our generation portfolio in England and Wales, construction of the 400 MW Combined-Cycle Gas Turbine (CCGT) station near Brighton is well under way, and the station is on schedule to commence commercial operation in winter 2000.

Power Systems

Ofgem announced its updated draft proposals for the Distribution Price Controls in October, with a paper which underlined our strong performance. It continued to recommend the lowest price reduction for ScottishPower, while Manweb was given the second-lowest price cut amongst companies in England and Wales. However the proposed reductions for 2000-01, which are 6% for ScottishPower and 13% for Manweb, would provide us with a major challenge in meeting our ongoing targets. For all Regional Electricity Companies, Ofgem has built further very demanding operating efficiencies into its assumptions by setting price increases for subsequent years at 3% below inflation.

Ofgem also announced in October draft proposals for the transmission business, recommending an initial price reduction of 13% in April 2000, followed by annual increases of 1% below inflation. We are continuing to make strong representations to Ofgem in advance of its final determinations for both transmission and distribution.

A further Ofgem publication during October was its consultation paper regarding the Review of Scottish Trading Arrangements. The proposals are broadly consistent with our own recommendations. We support the introduction of a separate Scottish System Operator, and we welcome the proposal that the restructuring contracts including the Nuclear Energy Agreement, should be reviewed. We agree that the rules for access to the interconnector should be transparent and non-discriminatory and that the auctioning of capacity would be an appropriate component of the revised arrangements when the total package of changes are introduced. The proposals represent a sensible development of the market in Scotland for the long term and allow customers to continue to benefit from the integrated management of the ScottishPower wires business. We will debate the proposals for any interim arrangements with Ofgem.

Considerable investment has been made to minimize the inconvenience to customers resulting from any future major storms in our franchise areas. We have dramatically increased the call-handling capacity of our call-centers, we have overhauled the automatic systems which monitor our network and a major program to strengthen the network and ensure adequate tree clearance is under way.

Completion of the upgrade of the Anglo-Scottish transmission link to 2200 MW is dependent on the reinforcement of the North Yorkshire line which is currently scheduled for autumn 2001 and we are working with National Grid Company plc to maximize operational availability in the interim period. Construction of the proposed interconnector between Scotland and Northern Ireland is expected to begin in spring 2000 and, on that basis, the company believes the link will be operational by December 2001.

Southern Water

Southern Water's substantial progress in terms of cost efficiency and improved customer service standards has been recognized by OFWAT. Southern Water is one of the highest ranked companies in OFWAT's league tables for 1998-99 for efficiency on water operating costs. We have also made considerable gains in wastewater efficiency and service levels. In light of this, we are very disappointed by the 15.6% price reduction proposed by OFWAT in the draft determination for Southern Water. This initial reduction would come into effect in April 2000, with prices only rising with inflation thereafter. We have made strong representations to the Regulator on the proposals and are pursuing vigorous discussions with OFWAT in support of our case.

We are on course to deliver a substantial capital expenditure program, amounting to almost (pound)400 million this financial year. Major wastewater treatment works planned for completion include Dover and Folkestone, and the Hastings bathing water improvements, while construction is under way on projects to improve bathing water quality in the Solent area via the Portsmouth and Havant scheme and the Seaclean Wight scheme. Other major construction projects making progress include Littlehampton and Bognor, Newhaven and Lewes, Swalecliffe and Hythe. A public inquiry has started into the company's appeal against the refusal of planning permission for the Portobello wastewater scheme.

The five-year "Way Ahead" initiative is expected to deliver cost savings through a restructuring program which includes the rationalization of three control centers into one regional control center, the closure of existing county headquarters and the redeployment of essential staff to under-utilized accommodation at water and wastewater works.

Thus

We have recently announced our intention to proceed with a flotation of a minority stake in Thus, our Internet and telecom business, through an institutional offering of ordinary shares, together with an offering of ordinary shares to employees of Thus.

ScottishPower has built Thus, formerly ScottishTelecom, both organically and through acquisition, into a leading provider of Internet and interactive services and a significant provider of call-center services in the United Kingdom. Thus also provides a wide range of data and telecoms services in the UK. The Board believes the timing is now right to release value for ScottishPower shareholders through a flotation of a minority interest in Thus. In addition to realizing value for ScottishPower, proceeds of the offering will be used by Thus to repay debt owed to ScottishPower and to fund the continued growth of Thus. ScottishPower is retaining a majority stake in Thus, reflecting its confidence that the business will continue to grow and to generate further value for ScottishPower shareholders.

The Internet, carriage of data traffic and traditional voice telephony are converging to create a single fast-growing global medium for communication, which is becoming increasingly important for businesses. These developments have led to major changes in the commercial and technological environment within which Thus operates. The company's strategy for growth is to take advantage of these trends by integrating and cross-selling the services it currently provides, and by developing and offering Internet and data solutions to enable customers to exploit new technologies. Thus is also continuing to develop its infrastructure and is expanding its network on a pan-UK basis. This is expected to be completed in March 2002.

Thus offers a variety of Internet services, principally under the "Demon" brand, which are marketed throughout the UK and in the Netherlands. As at September 30, 1999, Thus (including its subsidiary undertaking, Scotland On-Line Ltd.) had over 260,000 paying Internet customers, approximately 34,000 of whom were in the Netherlands. The company is the second largest web-hosting business in the UK, and at September 30, 1999 had approximately 13,800 commercial web customers. It has recently launched an e-commerce product to this customer base. Thus is also a leading provider of a number of interactive information services, games and competitions using premium rate call services and has an estimated 14% of the UK premium rate service provider market.

In addition, Thus offers a wide range of data and telecom services, primarily to business customers. As at June 30, 1999, it provided approximately 14,300 direct lines to its business customer base, which included more than 500 businesses.

At September 30, 1999, Thus also deployed approximately 1,000 agents in its call-center business, which has customers including Compaq, Microsoft, Toyota and the US Embassy. Other Businesses Profits in our Retail business have grown by (pound)4 million for the first six months, despite continued intense competition in the electrical retail market. We have maintained market share and our newly established management team is actively identifying opportunities to grow market share and further improve profitability.

We have announced plans to look at options to maximize value from our Contracting Services and Technology businesses and will consider a number of routes to achieve this.

Year 2000

ScottishPower is now approaching the end of its program, which was established in 1997, to manage any effects that the so-called "millennium bug" may have on the group's operations. It has used a methodology built on practices developed in conjunction with several user groups, including the Electricity Association (the trade association for electricity), UK Y2K Interest Group (the largest Year 2000 self-help group in the UK) and IMPACT (a confederation of many of the top 100 companies in the UK). Our approach has focused on testing our own internal systems, understanding the Year 2000 readiness of our suppliers and major customers, while modifying and developing contingency processes to reduce residual risk. In the case of Thus' Internet business, three processes are the subject of ongoing compliance projects. Completion of these projects is targeted for the end of November.

An independent assessment of the company's preparations has been undertaken by the Regulators for electricity, gas, water and telecommunications. This has resulted in ScottishPower, Manweb, Southern Water and Thus achieving a 100% "blue" rating from the Government sponsored Action 2000 group. The assessment shows no identified risk of material disruption of all systems considered essential to the provision of the UK's infrastructure.

A Millennium Operating Regime will be established over the key period. This will place the group in a heightened state of readiness and well positioned to respond to any unforeseen incidents that may occur. As at September 30, 1999, the group has already spent approximately (pound)29 million on its Year 2000 program. The directors' estimate that the total cost to ScottishPower of the Year 2000 program will be approximately (pound)31 million. This does not include the cost of certain capital investment programs which are being accelerated in order to seek to resolve the Year 2000 issues.

PacifiCorp merger

We have made excellent progress through the required approval process, and we are well on track to complete the PacifiCorp merger by the end of 1999. We have already secured all necessary approvals in the UK and all major US federal approvals, including the Federal Energy Regulatory Commission and the Hart-Scott-Rodino Antitrust Improvements Act. Having secured clearance from the States of California, Oregon, Washington, and verbal approval from the State of Wyoming, we are awaiting only the final approval from the State regulatory commissions of Idaho and Utah to conclude the merger. Staff in both remaining States have recommended the merger to the commissioners, who are responsible for granting final clearance for the deal.

We have gained the support of the staff in each state by demonstrating our firm commitment to customer service, employees and communities, and by demonstrating our proven ability to enhance the efficiency of power operations and apply our experience in competitive markets. As part of the settlement discussions with State regulatory commissions in Oregon, Utah, Idaho and Washington, we have agreed to grant a merger-related credit of around $30 million, or (pound)19 million, per annum with a duration of four years for these states.

Shareholders in both ScottishPower and PacifiCorp have approved the deal. The successful completion of the transaction will make ScottishPower a significant electricity company in world terms, with a market capitalization approaching (pound)10 billion. The combined group will include 24,000 employees serving some 7.5 million customers and generating over (pound)6.5 billion of turnover. On completion, the number of ScottishPower shares in issue will increase from around 1,160 million to approximately 1,850 million. As a result, ScottishPower's weighting in the FTSE 100 Share Index will increase from around 0.51% to approximately 0.81%.

On completion of the merger, ScottishPower will adopt a transition plan approach to PacifiCorp, using the proven techniques and methods established in Manweb and Southern Water. This exercise will take six months and the findings will be published, along with the preliminary results for the combined group, in May 2000. PacifiCorp is also seeking approval for price increases and has filed for rate cases in Wyoming and Utah. We believe that the increases, combined with efficiencies identified, will enable PacifiCorp to achieve more quickly its stated aim of earning the authorized regulatory rate of return in each US State in which it conducts business, thereby delivering value to shareholders.

Dividends

ScottishPower remains committed to our previously stated aim of achieving 7% to 8% real dividend growth per annum until at least the regulatory reviews which take effect in the year 2000. It is our current aim to deliver real dividend growth thereafter and this will be re-examined once the outcome of these regulatory reviews is known.

Following completion of the merger with PacifiCorp, ScottishPower proposes to move to quarterly reporting and payment of dividends quarterly. It is expected that four approximately equal payments will be made in February, May, August and November of each year. This will provide significant benefit to existing ScottishPower shareholders, as cash payments will be accelerated, with the final dividend being paid in May each year compared with October.

In order to smooth the move to paying dividends quarterly, it is anticipated that once ScottishPower knows the expected date of completion of the merger it will announce a pre-completion dividend in respect of the period up to completion. The amount of this dividend will aim to put ScottishPower shareholders in the same position as they would have been, had ScottishPower been paying dividends quarterly since April 1, 1999. PacifiCorp shareholders will also be paid a dividend in respect of the period up to completion.

Share Buy-Back

In order to move further towards an optimum capital structure for the combined group, ScottishPower announced its intention to buy-back up to (pound)500 million of its own shares. At September 30, 1999 more than 39 million shares had been bought back at a total cost of (pound)221 million. The company has since been precluded from trading in its own shares during its close period. We will continue to examine our capital structure and resume the buy-back program if this is possible after the interim results and the Thus flotation, and before completion of the merger with PacifiCorp.

The Board

Charles Miller Smith, a leading UK businessman, who was appointed as Chairman of ICI in April this year, joined ScottishPower as Deputy Chairman on August 1, 1999.

Summary

The challenges ahead will be to deliver value from the integration of PacifiCorp into the ScottishPower group, to win new customers and sell more to existing customers in our Energy Supply business, and to continue to realize efficiencies in our infrastructure businesses. Our financial performance to date is in line with our expectations. However, the UK utility market is becoming increasingly competitive and we are concerned that the Ofgem and OFWAT regulatory reviews, if implemented in their current forms, would have serious implications for customer service, infrastructure investment and shareholder returns. We are pressing both Regulators vigorously to reconsider their positions.

ScottishPower is a vertically integrated electric utility in Scotland, and is active in the distribution and/or supply of electricity, gas and water throughout the UK. The company is also active in telecommunications, and has recently announced an IPO of its telecom subsidiary Thus.

ScottishPower's ADR, equivalent to four ordinary shares, trades on the New York Stock Exchange under the symbol SPI. ScottishPower's ordinary shares trade on the London Stock Exchange. Prices may be accessed on Bloomberg under the symbols SPI and SPW LN, on the Reuter Equities 2000 Service under SPW.L and on Quotron under SPWU.EU. -0-

Group Profit and Loss Account
for the six months ended September 30, 1999

                                     First half  First half  Full year
                                      1999-00    1998-99     1998-99
                               Notes  (pound)m    (pound)m   (pound)m
----------------------------------------------------------------- ----------
--------------- --------------- --------------
Turnover: group and share of
joint ventures and associates         1,534.1    1,446.7     3,251.5

Less: share of
turnover in joint ventures               (3.2)      (1.8)       (7.3)

Less: share of
turnover in associates                   (0.2)      (1.0)       (1.9)
                                     --------   --------    --------
Group turnover from
continuing operations             2   1,530.7    1,443.9     3,242.3

Cost of sales                          (902.2)    (830.3)   (1,860.5)
                                     --------   --------    --------
Gross profit from
continuing operations                   628.5      613.6     1,381.8

Transmission and
distribution costs                     (137.5)    (122.0)     (348.8)

Administrative expenses                (180.8)    (183.0)     (348.8)
Other operating income                   15.0       15.8        27.9
--------------------------------------------------------------------
Operating profit
from continuing operations        2     325.2      324.4       802.8

Share of operating
profit in joint ventures                  0.6        0.3         2.1

Share of operating
profit/(loss) in associates                -        (0.1)        0.2
                                      -------   --------    --------
Profit on ordinary activities
before exceptional items                325.8      324.6       805.1

Exceptional items

- Loss on termination of
and withdrawal from operations    3     (55.0)        -           -
--------------------------------------------------------------------
Profit on ordinary
activities before interest              270.8      324.6       805.1

Net interest charge
- Group                                 (85.3)     (77.3)     (160.8)
- Joint ventures                         (0.7)        -         (0.5)

- Associates                               -          -           -
                                      -------   --------    --------
                                        (86.0)     (77.3)     (161.3)
                                      -------   --------    --------
Profit on ordinary
activities before taxation              184.8      247.3       643.8

Taxation
- Group                                 (50.3)     (56.8)     (141.0)
- Joint ventures                           -        (0.1)       (0.5)
- Associates                               -          -         (0.1)
                                      -------   --------    --------
                                  4     (50.3)     (56.9)     (141.6)
---------------------------------------------------------------------------
-------------   -------------   ------------
Profit after taxation                   134.5      190.4       502.2
Minority interests                        0.2       (0.3)        0.6
Profit for the period                   134.7      190.1       502.8
Dividends                               (95.2)     (89.9)     (267.9)
Profit retained                          39.5      100.2       234.9
                                      -------    --------    -------
Earnings per ordinary share       5     11.45p     16.05p      42.42p

Adjusting item
- exceptional items                      4.67p        -           -
                                      -------   --------    --------
                                        16.12p     16.05p      42.42p
Adjusting item
- goodwill amortization                  0.20p      0.04p       0.10p

Earnings per ordinary share
before exceptional items
and goodwill amortization         5     16.32p     16.09p      42.52p

Diluted earnings
per ordinary share                5     11.38p     15.87p      42.00p

Adjusting item
- exceptional items                      4.65p        -           -
                                      -------   --------    --------
                                        16.03p     15.87p      42.00p

Adjusting item
- goodwill amortization                  0.20p      0.04p       0.10p

Diluted earnings per
ordinary share before
exceptional items and
goodwill amortization             5     16.23p     15.91p      42.10p

Dividends per ordinary share      6      8.27p      7.50p      22.50p

     A statement of total recognized gains and losses is not shown as
all gains and losses for the periods above are recognized in the
profit and loss account.

The Notes on pages 12 to 17 form part of these Accounts.




Note of Historical Cost Profits and Losses
for the six months ended September 30, 1999

                                     First half  First half  Full year
                                      1999-00     1998-99     1998-99
                                     (pound)m    (pound)m    (pound)m
----------------------------------------------------------------------
Profit on ordinary
activities before taxation              184.8      247.3       643.8

Difference between historical
cost depreciation charge and
actual depreciation charge for
the period calculated on the
revalued amount of fixed assets           1.7        1.7         3.4

Historical cost profit
on ordinary activities
before taxation                         186.5      249.0       647.2
                                      =======   ========    ========
Historical cost profit retained
for the period after taxation,
minority interests and dividends         41.2      101.9       238.3
                                      =======   ========    ========


Reconciliation of Movements in Shareholders' Funds
for the six months ended September 30, 1999

                                     First half  First half  Full year
                                      1999-00     1998-99     1998-99
                            Notes     (pound)m   (pound)m    (pound)m
---------------------------------------------------------------- -----
Profit for the period                   134.7      190.1       502.8
Dividends                               (95.2)     (89.9)     (267.9)
                                      -------   --------    --------
Profit retained                          39.5      100.2       234.9
Share capital issued                      3.3        2.7         3.2
Share buy-back                   13    (191.9)        -           -

Impairment of goodwill
previously written
off to reserves                   3       7.5         -           -
                                      -------   --------    --------
Net movement in
shareholders' funds                    (141.6)     102.9       238.1
-------------------------------------------------------------------------
---------------  ---------------- --------------
Opening shareholders' funds           1,945.9    1,707.8     1,707.8
Closing shareholders' funds           1,804.3    1,810.7     1,945.9

The Notes on pages 12 to 17 form part of these Accounts.
----------------------------------------------------------------------



Group Cash Flow Statement
for the six months ended September 30, 1999

                                     First half  First half  Full year
                                      1999-00     1998-99     1998-99
                            Notes     (pound)m    (pound)m    (pound)m
----------------------------------------------------------------------
Cash inflow from continuing
operating activities              8     418.6      414.0       944.9

Dividends received from
associates and joint ventures             0.2         -          0.9

Returns on investments
and servicing of finance                (95.0)     (62.0)     (149.9)
Ordinary taxation                       (19.6)     (10.2)      (93.7)
                                      -------   --------    --------
Free cash flow
before windfall tax                     304.2      341.8       702.2

Exceptional taxation
- windfall tax                             -          -       (157.8)
                                      -------   --------    --------
Free cash flow                          304.2      341.8       544.4

Capital expenditure
and financial investment               (377.1)    (302.6)     (683.0)

Cash flow before
acquisitions and disposals              (72.9)      39.2      (138.6)
Acquisitions and disposals              (32.4)     (77.4)      (77.4)
Equity dividends paid                      -          -       (252.8)
                                      -------   --------    --------
Cash outflow before use of
liquid resources and financing         (105.3)     (38.2)     (468.8)

Management of liquid resources    9      (9.0)       0.8       (12.1)

Financing
- Issue of ordinary
  share capital                           3.3        2.7         3.2
- Share buy-back                 13    (204.0)        -           -
- Increase in debt                9     482.0      152.9       451.0
                                      -------   --------     -------
                                        281.3      155.6       454.2
Increase/(decrease)
in cash in period                 9     167.0      118.2       (26.7)

-    Free cash flow represents cash flow from continuing operating
     activities after adjusting for dividends received from associates
     and joint ventures, returns on investments and servicing of
     finance and taxation.
----------------------------------------------------------------------

Reconciliation of Net Cash Flow to Movement in Net Debt
for the six months ended September 30, 1999

                                   First half  First half  Full year
                                    1999-00     1998-99     1998-99
                             Note  (pound)m    (pound)m    (pound)m
----------------------------------------------------------------------
Increase/(decrease)
in cash in period                       167.0      118.2       (26.7)
Cash inflow from increase in debt      (482.0)    (152.9)     (451.0)

Cash outflow/(inflow) from
movement in liquid resources              9.0       (0.8)       12.1

Change in net debt
resulting from cash flows              (306.0)     (35.5)     (465.6)

Net debt acquired                          -        (2.7)       (2.7)
Other non-cash movements                 (0.7)        -         (0.3)

Movement in net debt in period         (306.7)     (38.2)     (468.6)
Net debt at end of previous period   (2,421.2)  (1,952.6)   (1,952.6)
Net debt at end of period         9  (2,727.9)  (1,990.8)   (2,421.2)

The Notes on pages 12 to 17 form part of these Accounts.
--------------------------------------------------------------------



Group Balance Sheet
as at September 30, 1999

                                    September   September     March
                                    30, 1999    30, 1998    31, 1999
                            Notes   (pound)m    (pound)m   (pound)m
--------------------------------------------------------------------
Fixed assets
Intangible assets                        68.9       72.0        71.3
Tangible assets                       5,486.2    4,963.8     5,295.1
Investments
- Investments in joint ventures:
  Share of gross assets                  88.2       31.8        54.2
  Share of gross liabilities            (66.1)      (9.6)      (29.8)
                                      -------    -------    --------
                                         22.1       22.2        24.4
- Investments in associates               5.8        7.0         5.9
- Other investments                      39.7       44.2        43.4
                                      -------    -------    --------
                                         67.6       73.4        73.7
                                      -------    -------    --------
                                      5,622.7    5,109.2     5,440.1
----------------------------------------------------------------------
Current assets
Stocks                                  137.6      137.3       125.8
Debtors                                 561.3      488.5       559.3

Short-term bank
and other deposits                      287.9      235.0       106.9
                                      -------    -------     -------
                                        986.8      860.8       792.0

Creditors: amounts falling
due within one year

Loans and other borrowings           (1,037.6)    (509.0)     (843.6)
Other creditors                      (1,357.4)  (1,515.9)   (1,332.8)
                                      -------    -------     -------
                                     (2,395.0)  (2,024.9)   (2,176.4)
Net current liabilities              (1,408.2)  (1,164.1)   (1,384.4)

Total assets less
current liabilities                   4,214.5    3,945.1     4,055.7

Creditors: amounts falling due
after more than one year

Loans and other borrowings           (1,978.2)  (1,716.8)   (1,684.5)

Provisions for
liabilities and charges           7     (23.8)     (37.2)      (30.8)

Deferred income                        (407.1)    (378.2)     (393.2)
                                      -------   --------     -------
Net assets                        2   1,805.4    1,812.9     1,947.2
======================================================================
Called up share capital                 583.2      599.3       599.4
Share premium                             0.3         -           -
Revaluation reserve                     222.2      225.6       223.9
Capital redemption reserve                8.8         -           -
Merger reserve                          405.7      393.4       394.0
Profit and loss account                 584.1      592.4       728.6

Shareholders' funds (including
non-equity shareholders' funds)   1   1,804.3    1,810.7     1,945.9

Minority interests                        1.1        2.2         1.3
Capital employed                      1,805.4    1,812.9     1,947.2
======================================================================
Net asset value
per ordinary share                5    153.73p    149.85p     161.24p
======================================================================

The Notes on pages 12 to 17 form part of these Accounts.

Approved by the Board on November 3, 1999 and signed on its behalf by

   Murray Stuart           Ian Russell
   Chairman                Deputy Chief Executive and Finance Director

-    Full notes to the financial tables are available by calling
     Taylor Rafferty Associates at [phone]