Shareholder Executive

National Nuclear Laboratory

Purpose

The National Nuclear Laboratory (NNL) brings together within a single organisation the bulk of the UK’s nuclear research and development capabilities, drawing in particular on the legacy of the BNFL and the former Magnox Electric business. It offers to the market world class, science based technology solutions and research services.The range of services encompasses the nuclear fuel cycle and includes:

• nuclear science
• waste and residue management
• plant process support
• modelling and simulation
• materials and corrosion
• environmental management
• homeland security and non-proliferation
• specialist analytical services
• knowledge, data and laboratory management.

Legal Status and Ownership

UK registered private limited company in which the Secretary of State for Energy and Climate Change holds all of the shares through a holding company NNL Holdings Ltd.

Government's Objectives

The Government’s objectives for the NNL are for it to:

• become an international centre of excellence in nuclear research and development, playing a vital role in cleaning up the UK’s nuclear waste legacy and contributing to the programme of nuclear new build
• safeguard the UK’s high tech nuclear expertise, facilities and skills
• demonstrate value for customers
• ensure the stability of the immature UK civil nuclear R&D market
• create a platform for UK and internationally funded R&D
• provide a basis for opening up the UK market to nuclear facility operational and clean up R&D
• ensure the latent value of the UK’s R&D can be demonstrated and realised
• safeguard the contribution that the NNL makes to the West Cumbrian economy and local ambitions to become an Energy Coast.

Financial Performance

£m	2009	2008	2007
Turnover	75	72	-
Operating Profit	7	11	-
Profit/(Loss) for the year	6	(12)	-
Net Cash flow	-	-	-
Net Operating Assets	(3)	14	-
RONA	(276.7)%	78.5%	-
Shareholders' Funds	(6)	(11)	-
Dividends	-	-	-

Dividend policy

As a former BNFL subsidiary, the NNL did not pay a dividend. Under the new GOCO arrangements it will from 2009-10 be required to at least provide a return against capital. Profits are generally reinvested in the business with a percentage of increases being provided to the management contractor as its fee.

Performance targets

Targets under the three to five year management contract are based on increased revenues, EBIT and customer satisfaction/value as well as increased facility utilisation and the full commissioning of Central Laboratory phases two and three (subject to business case).

Notes

¹ All of the Board was replaced in April 2009 as part of management contract arrangements.The Board now comprises Richard Maudslay CBE (Chair), Mike Lawrence (Managing Director), David Healey (Finance Director), Paul Howarth (Technology Director) and two Non-Executive Directors Peter Jones and Ian Smale.

Commentary

The NNL is a new addition to the Shareholder Executive’s portfolio.A review in 2006 of the need for the NNL² concluded that there was a need to safeguard the nuclear skills and capabilities currently vested in the NNL so as to support a number of the UK’s strategic nuclear programmes covering decommissioning and clean up, power generation and MOD interests.The conclusion was that this was best achieved with an NNL operating on a commercial basis managed through a Government Owned Contractor Operated (GOCO) arrangement.

The competition to select a GOCO took the form of competitive dialogue, started in 2008 and concluded at the end of March 2009.There were two good competitors, the winner being SBM, a consortium consisting of Serco, Battelle and The University of Manchester. SBM took over the management of the NNL on 6 April.

NNL was a soundly run business capable of being improved.The bidders in the competition were presented with the NNL’s five year business plan and a draft set of contractual documents and asked to produce proposals which improved on the business plan and, so far as the bidders felt possible, reflected the contractual terms the Government was seeking.

The relationship between the Government, the NNL and the GOCO contractor is governed by a contract whose initial term is for three years and which can be extended for a further one year and then a further year. Under the terms of the contract, the GOCO contractor makes its money through having the costs of its team in the NNL met and is rewarded by taking a share of the EBIT above the base line in its bid.There are also in the contract a set of performance indicators that the GOCO contractor has to meet, and if it does not do so it typically suffers a financial penalty.

² At that time the NNL was operating as Nexia Solutions Ltd, a subsidiary of BNFL.