Shareholder Executive

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Performance of the portfolio in 2007-08

The portfolio

The Shareholder Executive has a remit to work with 29 of the more commercial businesses wholly or partly owned by central Government. In 2007-08 the businesses had a combined turnover of £24bn (excluding the four businesses which had not published their results at the time of compiling these financials: Scottish Water, Actis, ECGD and the Forensic Science Service), equivalent to approximately 1.8% of UK GDP. The Shareholder Executive has been involved in the full range of the Government's shareholder responsibilities for 27 of these businesses, either directly or as an adviser to departmental shareholding teams. This compares with 25 businesses where the Shareholder Executive had such influence last year – with the QEII Conference Centre no longer covered in this report and the NDA, Urenco and Northern Rock being added to the portfolio.

Financial Performance in 2007-08

The performance of the portfolio was significantly impacted by the addition of new, high profile businesses and a few key events:

The addition to the portfolio of Northern Rock and the Nuclear Decommissioning Authority has had a significant negative impact on the consolidated numbers for the portfolio. These two businesses contributed pre-exceptional operating losses of £6.5bn and a post tax loss of £8.7bn, and are excluded from the analysis below.
BNFL continued to dispose of assets, including the sale of the Reactor Sites and Project Services businesses. This is reflected in a continued decline in sales of almost 80%, though the successful asset disposals allowed the company to pay a dividend to Government of £260m, in addition to the £1,800m special dividend paid last year. During 2007-08, the company also committed to pay a further dividend of £600m, which the Government received in July 2008.
In May 2007, the Nuclear Liabilities Fund (NLF) announced its intention to convert and sell 400m shares in British Energy, with an over allotment option of a further 50m. Subsequently, 450m shares were sold at 520p raising approximately £2.3bn for the NLF. Following this partial conversion and share issue the company's annual contribution to the NLF, which constitutes an amount equal to a set percentage of its free cash flow, was reduced from 64% to approximately 36%.

The charts in this chapter show the performance of the enlarged portfolio for each of the last three years. The analysis excludes Northern Ireland Water (which has changed accounting standards and so has no comparable historic results), the NDA, Northern Rock and Urenco (which were only added to the portfolio late in the year) as well as those businesses where last year's data is not yet available: Actis, ECGD, FSS and Scottish Water.

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Notes (Net Operating Assets and RONA):
1 British Energy net operating assets excludes conversion asset associated with sell down of NLF stake

Notes (Portfolio Dividends):
1 Excludes the £1.8bn special dividend from BNFL.
2 Excludes the £260m special dividend from BNFL and BE dividend.

The turnover, excluding the above businesses, has remained constant at £17.9bn, reflecting increased revenues across the majority of the portfolio, being offset by the reduction in turnover from BNFL highlighted above. Operating profit declined marginally from £1.7bn to £1.6bn, with profit after tax experiencing a more marked decline from £3.6bn to £1.2bn. However, last year's profit figures include an exceptional gain in excess of £2bn for BNFL. If this company's results are excluded, then the decline is far less pronounced: from £1.4bn in 2006-07 to £1.3bn in 2007-08. Return on net operating assets fell over the year, moving from 15.1% to 13.2% driven by a fall in operating profit in two of our larger businesses: British Energy and Royal Mail. However, despite this overall decline, several of the businesses displayed a notable improvement, including CDC, Covent Garden Market Authority, Ordnance Survey and the Royal Mint, all of which improved their RONA by 4.5% or more.

In terms of capital remuneration, the Shareholder Executive has a target to ensure a progressive return to dividend paying in its businesses where this is deemed appropriate. The total amount of dividends paid by these businesses rose from £52m to £71m, with the Government's share increasing from £42m to £56m. In addition, the Government received a further £260m special dividend from BNFL, and British Energy made a payment to the NLF of £102m in respect of the 2007-08 cash sweep (2006-07: £171m). Government also received payments of £106m from NATS during the year, following the redemption of outstanding shareholder loan notes. Therefore, including the conversion of the stake in British Energy, the total Government receipts from portfolio companies for the year was in excess of £2.8bn, excluding the proposed £600m dividend from BNFL which was received after the year end.