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British Energy returns pounds 432m and looks abroad

BRITISH ENERGY, the nuclear power generator, is to return pounds 432m to shareholders and speed up its search for overseas acquisitions after being frustrated in its efforts to expand in the UK electricity market.

Peter Hollins, chief executive, admitted that the group was disappointed to be outbid in the auction for London Electricity and blocked by the Government from buying one of PowerGen's coal-fired stations. BE is now the UK's biggest electricity generator, with a 21 per cent market share.

But he said BE was still interested in acquiring a regional electricity company or supply business, possibly from Welsh utility Hyder, which yesterday confirmed that the energy supply business of South Wales Electricity was for sale.

BE is also extending the lives of two more of its advanced gas-cooled reactors, and expects the Government's de facto moratorium on gas-fired power stations to be lifted this year, allowing it to increase its UK generation interests.

The overseas expansion will see BE acquiring more nuclear electricity stations in the US, but Mr Hollins said it was also interested in buying non-nuclear businesses in both the US and Europe. BE has already bought Three Mile Island and is completing the purchase of two more US nuclear stations. Mr Hollins said the aim was to build a portfolio of six to eight US nuclear facilities.

Details of the pounds 432m distribution - equivalent to 60p per share or 10 per cent of BE's market value - will be spelt out in June, accompanied by a share consolidation of 43 shares for every 48 existing ones.

Michael Kirwan, BE's finance director, said the plan was to optimise the interests of all shareholders, including the 275,000 small investors who own 17.5 per cent of the company.

Even after the handout BE will be virtually ungeared and generating free cash at the rate of pounds 300m a year. Analysts speculate it may return more cash if it cannot find acquisitions.

Although BE will have the firepower to spend up to pounds 2bn on acquisitions, Mr Hollins said buying more US nuclear plants would not entail a big outlay. Meanwhile, the plan to expand into non-nuclear generation is at a very early stage; BE has yet to draw up a target list.

One analyst said BE's expansion strategy appeared becalmed. "The company has been blocked from buying a Rec, outbid by the French for London Electricity and is for the moment prevented from going further into gas-fired generation. It is generating huge amounts of cash, and yet it has not identified any sizeable overseas business on which to spend the money."

Confirmation of the return of capital to shareholders came as BE reported a 56 per cent rise in pre-exceptional profits last year to pounds 298m. It also said it was extending the lives of the Torness and Heysham 2 stations to 35 years, which will boost profits by a further pounds 25m.

Despite this, the shares fell 20p to 597p. Analysts said this partly reflected the lack of obvious growth opportunities for BE, which would remain a hold until its expansion strategy began to bear fruit.