Shareholder Executive

BNFL

Purpose

BNFL is in the final phase of repositioning its businesses into the private sector. Following a series of major disposals it now has two remaining operating activities: nuclear decommissioning and clean up at Sellafield pending handover in November 2008 to the new parent body organisation, and research and development through Nexia Solutions which was subsumed into the National Nuclear Laboratory in July and will transfer to a management contractor in early 2009. The company also owns a stake in AWEML, which runs the Aldermaston weapons complex under a Ministry of Defence management contract.

Legal Status and Ownership

BNFL is a public limited company wholly owned by the Government.

49,999 ordinary shares of £1 each are owned by the Secretary of State for Business Enterprise and Regulatory Reform and one ordinary share of £1 is owned by the Treasury Solicitor.

Government's Objectives

Vision

An efficient, competitive market in nuclear clean-up reducing the overall costs to HMG.

Objectives

• Sellafield to operate successfully under the current contract with the NDA, meeting operational performance/safety targets and transitioning smoothly to the new parent body organisation
• successfully complete the sale of the one third stake in AWEML and support the Shareholder Executive competition to appoint a management contractor to run the National Nuclear Laboratory
• complete the wind down by formally closing the BNFL Corporate Centre and disbanding the Board.

BNFL's key objectives in 2007-08 were:

• BNG's businesses to operate as successful, robust and viable UK cleanup organisations, capable of operating in a liberalised market
• BNFL's other businesses run for value.

Financial Performance

£m	2008	2007	2006
Turnover	174	841	1,417
Operating Profit	41	62	65
Profit/(Loss) before interest and tax, after exceptionals	(168)	2,272	4,612
Profit/(Loss) for the year	(127)	2,225	4,313
Net Cash flow1	(70)	102	(255)
Net Operating Assets	20	30	881
RONA	205.0%	206.7%	7.4%
Shareholders' Funds	945	1,225	830
Dividends2	-	-	-

1 In 2006, retained profit, net cash flow and shareholders’ funds all reflect the transfer of assets and liabilities to NDA and HMG under the Energy Act 2004.

2 In 2007, BNFL paid a special dividend of £1,800 million to its shareholder, HM Government, which is not shown here. A further special dividend of £260m was paid in 2008 with the commitment to pay a further £600m in July 2008; again these are not shown.

Commentary

The year saw major progress in repositioning BNFL in line with the 2003 strategy review. The programme of disposals and associated rundown activities continued apace and the sale of the Reactor Sites business was completed in June 2007, followed by the sale of the Project Services business in January 2008. Additionally, the transfer of BNFL Enrichment Ltd (owner of one-third of Urenco) to the Secretary of State for Business took place in April.

The Group's pre-exceptional operating profits from its remaining businesses reduced substantially this year to £61m from last year's level of £164m. This reduction essentially reflects the loss of the Reactor Sites' contribution following the sale of the business (£34m) and that for Urenco following its transfer to BERR (£78m). The Group incurred overall losses before taxation of £125m. The restructuring and disposal transactions have dominated the Group's financial results, requiring exceptional write-downs amounting to a net £259m, the majority of which results from the accounting treatment for the Urenco transfer. The success of the disposals, coupled with the ongoing investment activities and the financial performance of the continuing businesses enabled the Group to pay a dividend to the Government of £260m in September 2007.

Amidst a programme of such significant corporate change, the businesses have achieved sound safety performance with good performance against days away cases, INES (International Nuclear Event Scale) and environmental measures.

After year end, Susan Jee took over as Finance Director in June 2008, as successor to John Edwards. Looking forward, the key task this year will be to complete the successful transition of Sellafield to a new contractor in November while transforming Nexia into the National Nuclear Laboratory and completing the sale of BNFL's interest in the management contract at the Aldermaston weapons complex. If things go to plan, the business will be fully disbanded soon after November 2008.