British Energy halves dividend and warns of possible slide into losses

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The Independent Online

British Energy, the nuclear power generator, shocked the City yesterday by cutting its dividend in half and warning that falling electricity prices might plunge it into losses this year.

However, Peter Hollins, the chief executive, stood by the company's strategy and said he had not detected any shareholder pressure for boardroom resignations.

The dividend cut, reducing the pay-out for the year by 50 per cent to 8p, followed a 19 per cent fall in pre-tax profits for the year to 31 March to £241m, and a warning that there would be "a major deterioration" in financial performance this year. "We are not ruling out a loss for this year," Mr Hollins said.

British Energy shares, which have underperformed the bombed-out electricity sector by 65 per cent in the past year, slumped by a further fifth to close at 132p, down 36.25p.

Mr Hollins pledged to redouble British Energy's efficiency drive, saying that he expected to reduce operating costs by 20 per cent, or about £1.2bn, within three years.

Despite the slump in British Energy's fortunes, Mr Hollins said: "We have seen nothing to suggest that shareholders are being anything other than supportive. As far as my own personal position is concerned, I am very happy to leave that to shareholders to decide. The real question for investors is whether there is anybody who can run the business better than we can.

"We keep in close touch with out shareholders and although it would be absurd to sit here and say shareholders are not disappointed with our share price, the overwhelming majority recognise that electricity prices have changed much more rapidly than anybody in the industry anticipated."

Mr Hollins said British Energy had come a long way in delivering its strategy, meeting its cost-reduction targets, increasing its flexibility in the UK market by acquiring the electricity supply business of Swalec and National Power's Eggborough coal-fired station, and expanding into the US nuclear market.

Contract prices in the first half of this year are 15 per cent down on the period last year. If prices overall remain that much lower over the year, British Energy will take a £180m hit to its bottom line. Every tenth of a penny fall in the unit price of electricity reduces profits by £70m.

The decline in profits last year was blamed principally on two unplanned plant shutdowns at its Dungeness B and Heysham 2 reactors, which cost British Energy £113m.

The Dungeness B problem was due to a defect on a 30-year-old weld in a boiler steam pipe, while the shutdown at Heysham was caused by problems with turbine generating blades following a servicing by Siemens. British Energy has recovered £23m of the loss on insurance and said it was in "interesting" discussions with Siemens about obtaining further compensation.

Mr Hollins said the group would be interested in buying a second electricity supply business if one came along at the right price. It is also bidding to take over two Canadian nuclear plants with a combined output of 4,500 megawatts to add to its interests in North America, which include Three Mile Island.

Mr Hollins said there was no evidence of the company being stalked by a predator. Any bidder would have to persuade the Government to waive its golden share in British Energy restricting any single shareholder to a 15 per cent holding.