SECURITIES AND EXCHANGE COMMISSIONS
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15a-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of March 2002
SCOTTISH POWER PLC
(Translation of Registrant's Name Into English)
CORPORATE OFFICE, 1 ATLANTIC QUAY, GLASGOW, G2 8SP
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F ___
---
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes ___ No X
---
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_____.)
FORM 6-K: TABLE OF CONTENTS
1. Press Release of Scottish Power plc, dated March 8, 2002, announcement
regarding proposed sale of Southern Water plc and dividend policy.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
/s/ Scottish Power plc
----------------------------
(Registrant)
Date March 8, 2002 By: /s/ Alan McCulloch
------------- ----------------------------
Alan McCulloch
Assistant Company Secretary
Scottish Power plc
Friday 8 March 2002
SCOTTISH POWER plc
PROPOSED SALE OF SOUTHERN WATER plc
ANNOUNCEMENT OF DIVIDEND POLICY
.. Proposed sale of Southern Water for (Pounds)2.05 billion to First Aqua, a
company specifically formed to undertake the proposed acquisition
.. A further important step in focusing ScottishPower as an international energy
business and a complete exit from the water sector
.. Significantly strengthens ScottishPower's balance sheet, reducing pro forma
gearing from 112% to 81%
.. Proceeds from sale some (Pounds)300 million more than the (Pounds)1.7 billion
that was expected to have been released by the planned refinancing
.. The sale will result in some pro forma earnings dilution, an estimated
reduction in net assets of approximately (Pounds)450 million, and a goodwill
charge of (Pounds)740 million
.. Confirmation of stated aim to grow dividends by 5% per annum nominal to March
2003
.. With effect from 2003/4 dividend cover target of 1.5 - 2.0 times, and ideally
towards the middle of that range, which if applied to adjusted earnings for
the current year would imply a significantly lower dividend
.. We will aim to grow dividends broadly in line with earnings thereafter
Ian Russell, ScottishPower Chief Executive, said:
"I am pleased to announce today the successful sale of Southern Water. This is a
further important step in focusing ScottishPower as an international energy
business and allows us to make a complete exit from the water sector. The sale
releases some (Pounds)300 million more than the planned refinancing and
significantly strengthens our balance sheet by reducing group net debt.
We have also today confirmed that we remain committed to our stated aim of
growing dividends by 5% per annum nominal for the period to March 2003.
Thereafter we intend to adopt a dividend policy which reflects both the reduced
proportion of the group's profits derived from UK regulated infrastructure
businesses and the need to balance future investment with an appropriate
dividend return for shareholders.
Accordingly, with effect from the year ending March 2004 we intend to target
dividend cover in the range 1.5 - 2.0 times, and ideally towards the middle of
that range, which if applied to adjusted current year earnings would imply a
significantly lower dividend. We will aim to grow dividends broadly in line with
earnings thereafter."
Introduction
The board of Scottish Power plc ("ScottishPower" or the "Company") today
announces that it has reached agreement to sell Southern Water plc ("Southern
Water") to First Aqua, a fully-funded newly incorporated company financed by
third party debt, underwritten by The Royal Bank of Scotland and with equity
funding from private and institutional investors, for a total consideration of
(Pounds)2.05 billion.
In view of its size, the sale requires the approval of the shareholders of
ScottishPower, which will be sought at an extraordinary general meeting of the
Company. A circular containing further details of the sale and convening the
extraordinary general meeting will be sent to ScottishPower shareholders as soon
as possible.
Background to and reasons for the sale
Since the acquisition of Southern Water by ScottishPower in August 1996 for
(Pounds)1.79 billion including assumed debt, ScottishPower has significantly
improved the efficiency of Southern Water. As a result of applying
ScottishPower's management skills, Southern Water's efficiency rating has
improved from D for water and E for wastewater at the time of the acquisition to
A for both, the only UK water company to achieve this as reported by OFWAT in
December 2001. ScottishPower has also disposed of Southern Water's non-core
operations and property raising approximately (Pounds)129 million.
However, the circumstances and outlook for the UK water industry have changed
significantly since the acquisition of Southern Water and the financial return
from the business has been negatively impacted by the windfall tax and the 1999
Regulatory Review.
In 2001, ScottishPower announced that it was exploring options to release
capital from Southern Water which included a sale or refinancing of the
business, consistent with ScottishPower's strategy of recycling capital to
growth areas of its business.
On 7 November 2001, ScottishPower announced that it had decided to pursue a
capital restructuring of Southern Water which, subject to market conditions,
would result in approximately (Pounds)1.9 billion of ring-fenced borrowings in
Southern Water. After leaving approximately (Pounds)125 million of cash reserves
in Southern Water, and allowing for expenses, this would have released proceeds
of approximately (Pounds)1.7 billion. This decision followed a process which
concluded that refinancing would release more capital to ScottishPower and offer
less completion risk than the limited sale options available at that time.
After announcing the refinancing of Southern Water, ScottishPower received an
approach which, following negotiation, resulted in an offer for Southern Water
from First Aqua valuing the business at (Pounds)2.05 billion. This will release
more capital from Southern Water than refinancing and enables ScottishPower to
focus on its international energy business.
Financial effects of the sale
ScottishPower will receive on completion of the sale a total consideration of
(Pounds)2.05 billion, including repayment of intra-group indebtedness and
assumption of external debt, broadly equivalent to Southern Water's regulatory
capital value.
The cash consideration received as a result of the sale will be used to reduce
group net debt and fund investment. On the basis that all the consideration is
initially used to reduce group net debt, pro forma gearing as at 31 December
2001 would fall from 112% to 81% following the sale. On the same basis, the sale
would be dilutive to the earnings per share of ScottishPower.
Details of the effects of the sale are shown in the unaudited pro forma
consolidated balance sheet of ScottishPower set out in Part 2 of this
announcement. ScottishPower estimates that it will recognise a loss on sale of
approximately (Pounds)450 million after expenses and before goodwill write-back.
This estimate is based on the unaudited net assets of Southern Water as at 31
December 2001 as shown in the pro forma and takes into account the estimated
movements in the net assets and net debt of Southern Water between 31 December
2001 and expected completion of the transaction in April 2002. ScottishPower
will also recognise a charge of (Pounds)740 million to the profit and loss
account on the sale in respect of goodwill. Because this goodwill was written
off to reserves at the time Southern Water was acquired, recognising this charge
in the profit and loss account will not impact on reported net assets. A
provision for the loss on sale, including the goodwill write-back, will be
recognised as an exceptional item, charged after operating profit, in
ScottishPower's results for the year ending 31 March 2002.
Dividend policy
ScottishPower confirms that it remains committed to its stated aim of growing
dividends by 5% per annum nominal for the period to March 2003.
Thereafter the Board intends to adopt a dividend policy which reflects both the
reduced proportion of the group's profits derived from UK regulated
infrastructure businesses and the need to balance future investment with an
appropriate dividend return for shareholders.
Accordingly, with effect from the year ending March 2004 we intend to target
dividend cover, based on earnings before goodwill and exceptional items, in the
range 1.5 - 2.0 times, and ideally towards the middle of that range. We will aim
to grow dividends broadly in line with earnings thereafter.
For illustrative purposes only, based on our expectations of earnings before
goodwill and exceptional items in the current year, adjusted to add back the
impact of excess US net power costs as announced in September 2001 and to
reflect the pro forma impact of the Southern Water sale for the full year, this
level of cover would imply a significantly lower dividend than under our current
dividend policy.
Information on First Aqua
First Aqua is a company specifically formed to undertake the proposed
acquisition, and is financed by third party debt underwritten by The Royal Bank
of Scotland with equity funding from private and institutional investors.
First Aqua has stated that in conjunction with Southern Water's existing
management, it will have the ability and expertise to operate Southern Water for
the foreseeable future. First Aqua has said that they have given detailed
consideration to ensuring the continued success and good governance of Southern
Water, intend to secure the continued participation of the present management
and have had discussions with OFWAT on these matters.
First Aqua has stated that it recognises one of its future options is the
possibility of a sale of Southern Water to an industrial concern at some point
after completion of this transaction. ScottishPower understands that discussions
have taken place with Vivendi Environnement ("Vivendi") in this respect, but
that no agreement has been entered into for the sale of Southern Water to
Vivendi.
First Aqua has stated that an option over certain non voting preference shares
to be issued by First Aqua's parent company has been granted in favour of
Vivendi. ScottishPower understands that this option cannot be exercised until
completion of the acquisition of Southern Water by First Aqua, and that there
are no other agreements or obligations created in favour of Vivendi with respect
to Southern Water.
Information on Southern Water
Southern Water Services Limited ("Southern Water Services"), the principal
operating subsidiary of Southern Water, is one of the ten water and wastewater
companies operating in England and Wales. It undertakes two principal
activities: the provision of water supply and the provision of wastewater
(including trade effluent) services. These activities accounted for
approximately 99% of the Southern Water Group's revenue in the year ended 31
March 2001.
Southern Water Services provides its services to residents throughout its
authorised water and wastewater areas in south-east England, from Swanscombe on
the Thames Estuary to just beyond the Solent at Barton-on-Sea, including the
Isle of Wight, covering an area of approximately 10,450 square kilometres. It
collects wastewater from approximately 1.7 million premises and supplies water
to approximately 1 million. Southern Water's headquarters are located in
Worthing, West Sussex. Southern Water Services is regulated by a number of
regulatory authorities, including the Director General of Water Services, the
Drinking Water Inspectorate and the Environment Agency. It is also subject to
various UK and European laws.
The recent unaudited trading record of the Southern Water Group is summarised
below.
-------------------------------------------------------------------------------------------------------
Years ended 31 March 9 months
ended
31 December
1999 2000 2001 2001
(Pounds)m (Pounds)m (Pounds)m (Pounds)m
Turnover 440.2 470.5 421.6 (Note 1) 320.5
Operating profit 260.2 278.1 221.2 157.4
Profit before taxation 258.4 271.6 193.9 141.8
-------------------------------------------------------------------------------------------------------
Source: ScottishPower Group unaudited consolidation schedules
Note 1: Turnover in the year ended March 2001 was reduced by (Pounds)58.4
million due to the impact of the P0 tariff reduction of 13% following the
Regulatory Review announced in December 1999.
As at 31 December 2001, based on unaudited accounts, Southern Water had net
assets of (Pounds)1.51 billion.
Terms of the sale
Under the terms of the sale agreement, the total consideration will be
(Pounds)2.05 billion including repayment of intra group indebtedness and
assumption of external debt. Completion of the sale is conditional upon: (i) the
approval of ScottishPower shareholders; (ii) European Union merger clearance;
and (iii) the absence of a material adverse change in relation to Southern
Water. ScottishPower will give certain warranties and indemnities to First Aqua
in the sale agreement, and ScottishPower will be entitled to terminate the sale
agreement if a substantial breach of certain warranties in relation to the
period between signing and completion which was outside its reasonable control
would otherwise occur at completion. A summary of the principal terms of the
sale agreement will be set out in a circular to the shareholders of
ScottishPower convening an extraordinary general meeting to seek approval for
the sale. That circular will be posted as soon as possible and completion of
the sale is expected in April 2002.
Current trading
ScottishPower continues to make good progress and the outlook for the business
remains as communicated at the time of ScottishPower's third quarter results on
31 January 2002.
Other
It remains ScottishPower's intention to proceed with the demerger of THUS on the
terms set out in the circular to shareholders dated 12 February 2002. An
extraordinary general meeting has been convened for 11 March 2002 to approve an
amendment to the ScottishPower articles of association and authorise the
directors to do all that is necessary to effect the demerger. The demerger is
expected to become effective on 19 March 2002.
On 17 and 18 February 2002, in light of press comment, ScottishPower made
announcements regarding its position in relation to Innogy Holdings plc
("Innogy"). ScottishPower wishes to emphasise that, in the absence of regulatory
requirements, it will maintain a general policy of refusing to comment on
rumours, and of not announcing any discussions, negotiations or possible
transactions until any relevant agreements have been concluded. This policy will
apply to Innogy where ScottishPower continues to monitor developments.
ScottishPower wishes to confirm, however, that there are no talks between
ScottishPower and Innogy at the current time.
Further information:
Scottish Power plc:
Colin McSeveny, Media 0141 636 4515
Andrew Jamieson, Investors 0141 636 4527
HSBC:
David Gray 020 7336 2030
Tulchan:
Andrew Grant 020 7353 4200
Katie Macdonald-Smith 020 7353 4200
ScottishPower has been advised on this transaction and on the proposed
refinancing of Southern Water by CSFB. ScottishPower has also been advised on
this transaction by HSBC, Morgan Stanley and UBS Warburg.
The following analyst conference calls are scheduled for today:
UK - 12pm +44 20 8781 0563
US - 3pm GMT (10am EST) (888) 391 7045 (US) or +1 415 228 5000 (UK/Europe)
ScottishPower is the reference name for both calls.
For the purposes of the UK's Financial Services and Markets Act 2000, persons
participating in these calls will be deemed to have solicited any financial
promotions they may receive during the course of such calls.
This announcement may contain forward-looking statements within the meaning of
Section 21E of the United States Securities Exchange Act of 1934. Forward-
looking statements should be read with the cautionary comments and important
factors included about forward looking statements in ScottishPower's Annual
Report and Form 20-F for the year ended March 31, 2001 under the title
"Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995". Forward-looking statements
are all statements other than statements of historical fact, including without
limitation those that are identified by the use of the words "estimates,"
"expects," "believes," "anticipates" and similar expressions.
HSBC Investment Bank plc has approved the content of this announcement for the
purposes of section 21 of the Financial Services and Markets Act 2000. CSFB,
HSBC Investment Bank plc, Morgan Stanley and UBS Warburg are acting exclusively
for ScottishPower and no one else in connection with the proposals described in
this announcement and will not be responsible to anyone other than ScottishPower
for providing the protections afforded to their clients or for providing advice
in relation to such proposals or the contents of this announcement.
Part 2
Pro Forma Financial Information
The following unaudited pro forma consolidated balance sheet of ScottishPower
Group ("ScottishPower") has been prepared for illustrative purposes only to show
the effect of the sale of Southern Water Group ("Southern Water"), after taking
account of the reduction of Scottish Power plc's share premium account as
confirmed by the Court of Session in Edinburgh on 5 March 2002, as if they had
occurred on 31 December 2001. Because of its nature, the unaudited pro forma
consolidated balance sheet may not give a true picture of the financial position
of ScottishPower.
Adjustments
------------------------------------------
ScottishPower Reduction of Scottish Southern Water Proceeds from Scottish
At 31 Share Premium Power At 31 sale Power
December Account as revised December on a Pro
2001 At 31 2001 Forma Basis
December At 31
2001 December
2001
(Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m (Pounds)m
------------------------------------------------------------------------------------------------------------------------------------
(Note 2) (Note 3) (Note 4) (Notes 1,5)
Fixed assets
Intangible assets - goodwill 2,678.0 - 2,678.0 - - 2,678.0
Tangible assets 12,231.7 - 12,231.7 (2,890.9) - 9,340.8
Investments 287.1 - 287.1 (1.9) - 285.2
------------------------------------------------- ------------- ----------- ----------- ------------- -------------- ----------
15,196.8 - 15,196.8 (2,892.8) - 12,304.0
------------------------------------------------- ------------- ----------- ----------- ------------- -------------- ----------
Current assets
Stocks 218.7 - 218.7 (4.6) - 214.1
Debtors 1,310.1 - 1,310.1 (128.9) - 1,181.2
Short-term bank and other deposits 449.7 - 449.7 - 1,900.9 2,350.6
------------------------------------------------- ------------- ----------- ----------- ------------- -------------- ----------
1,978.5 - 1,978.5 (133.5) 1,900.9 3,745.9
------------------------------------------------- ------------- ----------- ----------- ------------- -------------- ----------
Creditors: amounts falling due within one year
Loans and other borrowings (924.0) - (924.0) 743.8 (734.5) (914.7)
Other creditors (1,960.0) - (1,960.0) 269.3 - (1,690.7)
------------------------------------------------- ------------- ----------- ----------- ------------- -------------- ----------
(2,884.0) - (2,884.0) 1,013.1 (734.5) (2,605.4)
------------------------------------------------- ------------- ----------- ----------- ------------- -------------- ----------
Net current (liabilities)/assets (905.5) - (905.5) 879.6 1,166.4 1,140.5
------------------------------------------------- ------------- ----------- ----------- ------------- -------------- ----------
Total assets less current liabilities 14,291.3 - 14,291.3 (2,013.2) 1,166.4 13,444.5
Creditors: amounts falling due after more than
one year
Loans and other borrowings (5,698.0) - (5,698.0) 99.8 - (5,598.2)
Provisions for liabilities and charges (2,356.7) - (2,356.7) 365.3 - (1,991.4)
Deferred income (546.8) - (546.8) 36.4 - (510.4)
------------------------------------------------- ------------- ----------- ----------- ------------- -------------- ----------
Net assets 5,689.8 - 5,689.8 (1,511.7) 1,166.4 5,344.5
------------------------------------------------- ------------- ----------- ----------- ------------- -------------- ----------
Called up share capital 925.9 - 925.9 - - 925.9
Share premium 3,750.5 (1,500.0) 2,250.5 - - 2,250.5
Revaluation reserve 214.6 - 214.6 - (168.6) 46.0
Capital redemption reserve 18.3 - 18.3 - - 18.3
Merger reserve 406.4 - 406.4 - - 406.4
Profit and loss account 192.0 1,500.0 1,692.0 - (176.7) 1,515.3
------------------------------------------------- ------------- ----------- ----------- ------------- -------------- ----------
Equity shareholders' funds 5,507.7 - 5,507.7 - (345.3) 5,162.4
Minority interests 182.1 - 182.1 - - 182.1
------------------------------------------------- ------------- ----------- ----------- ------------- -------------- ----------
Capital employed 5,689.8 - 5,689.8 - (345.3) 5,344.5
------------------------------------------------- ------------- ----------- ----------- ------------- -------------- ----------
Note 1
The reduction in net assets, arising from the sale, shown in the unaudited pro
forma consolidated balance sheet of (Pounds)345.3 million does not take account
of the movements in the net assets and net debt of Southern Water between 31
December 2001 and completion of the transaction anticipated in April.
ScottishPower expects the reduction in net assets at completion to be
approximately (Pounds)450 million.
Note 2
The financial information for ScottishPower at 31 December 2001 is extracted
from its unaudited 2001/02 3rd Quarter Results.
Note 3
As confirmed by the Court of Session in Edinburgh on 5 March 2002, Scottish
Power plc has reduced its share premium account by (Pounds)1,500 million. This
has resulted in a transfer of a corresponding amount to Scottish Power plc's
profit and loss account reserves.
Note 4
The financial information for Southern Water at 31 December 2001 is extracted
from the unaudited consolidation schedules used in preparing the unaudited
2001/02 3rd Quarter Results of ScottishPower.
Note 5
Adjustments based on the unaudited net assets of Southern Water at 31 December
2001 relating to the proceeds from sale are as follows:
(Pounds)m
-----------
Total consideration 2,050.0
Liabilities assumed by the purchaser:
Loans and other borrowings
amounts falling due within one year (9.3)
amounts falling due after more than one year (99.8)
-----------
1,940.9
Expenses (40.0)
-----------
Cash received 1,900.9
-----------
Cash received includes repayment of intra-group indebtedness of (Pounds)734.5
million.
For the purposes of the pro forma financial information it has been assumed that
cash received will be placed in short-term bank and other deposits.
That part of ScottishPower's revaluation reserve relating to Southern Water of
(Pounds)168.6 million will be transferred to profit and loss account reserve on
sale.
Note 6
In preparing the pro forma financial information, no account has been taken of
trading or other transactions by ScottishPower or Southern Water since 31
December 2001. In particular, no adjustments have been made in relation to the
proposed refinancing and demerger of THUS described in the circular to
shareholders dated 12 February 2002.