Financial performance
Our UK Gas Distribution business contributed
£729 million to the Group’s adjusted operating
profit* which was an increase of £175 million.
Controllable costs were £103 million lower than
in the previous year.
Replacement expenditure on the UK gas
distribution network was £388 million in the
year and we earned an estimated £10 million
of additional profit during the second year of
operation of the incentive mechanism for
mains replacement.
Standards of Service
Over the past few months we have been
working with Ofgem and the wider industry to
implement plans to improve the standards of
service provided by Transco in relation to its
connections activities. While Ofgem has
recognised that the performance of the
connections service provided by Transco has
improved, in May 2004 it confirmed a financial
penalty of £1 million in relation to earlier
performance problems. While we continue to
work to improve our connections performance,
we are pleased that we again exceeded our
targets on our safety-related standards of
service – more than 98% of ‘uncontrolled’ gas
escapes (where the gas leak cannot be
controlled by turning the gas supply off at the
meter) were attended within one hour and more
than 99% of ‘controlled’ gas escapes (where
the gas leak can be controlled at the meter)
were attended within two hours.
Safety
With approximately 1,600 miles of iron
mains decommissioned, we achieved our
2003/04 target, making our network safer.
Using DuPont Safety Resources, we have
been working to improve our overall safety,
health and environmental performance, through
the implementation of best practice in UK Gas
Distribution. Over the last 12 months, we have
demonstrated a continued improvement, with a
22% reduction in Lost Time Injuries. By working
closely with our supply chain partners to share
best practice, we have also made significant
steps in improving their performance resulting
in a 43% reduction in their Lost Time Injuries.
We have initiated new training, which we believe
will educate and change behaviours to drive
improved safety performance further towards
our goal of zero injuries.
Potential distribution network sales
Our plans for the possible sale of up to four
of our regional distribution networks have
progressed steadily over the past year. Although
we may sell up to four networks, if this
maximises value, we remain committed to a
substantial gas distribution business in Britain
and we will continue to be the largest operator
of gas distribution assets in the country.
We expect to announce the results of this
process this summer with any sales due for
completion in early 2005.
The 'Way Ahead' for our retained distribution networks
We have begun our ‘Way Ahead’ restructuring
programme in the networks that we will retain.
This involves a move to a more centralised
structure that will enable us to place increased
emphasis on safety and efficiency, and the
deployment of best practice across the
organisation, and facilitate our aim to be
the best in the world at balancing cost,
performance and risk. Any network that is
currently part of the sale process, but is not
subsequently sold, will be incorporated into
the Way Ahead programme later this year.
This should enable us to deliver major reductions
in controllable operating expenditure.
* Excludes the impact of exceptional items.
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