Northern Ireland Electricity (NIE) proposes to pay a cash bonus of £67 million sterling to shareholders in a capital restructuring despite lower profits and uncertainties over tax and regulatory rules. This bonus represents 47.4p per share based on the closing price of 474p before the restructuring was announced. NIE said it would restructure its capital, changing its name to Viridian Group, a new holding company, which would give it the opportunity to buy back up to 10 per cent of shares.
It has also announced a 10 per cent increase in the interim dividend to 6.05p per share despite a fall in pre-tax profit from £52 million to £37.4 million in the six months to September 30th, 1997. A windfall tax of £43.7 million pushed it into a net loss of £14.2 million. This tax is to be reinvested in the local economy.
Shares were spurred higher by news of the buyback, adding 16p yesterday to 490p. The proposed restructuring involves the issue of nine ordinary shares in Viridian Group, plus 10 Viridian Group loan notes with a nominal value of 47.4p each, for every 10 NIE ordinary shares. The loan notes will have a six-month life because of tax considerations. However, they will be quoted so they can be redeemed almost instantly. The restructuring is designed to reduce the cost of capital nearer to what the regulator of electricity prices says it should be. The cost of capital is effectively reduced by replacing equity with loans. NIE's sales fell from £225.1 million to £201.1 million reflecting the 8 per cent cut in domestic tariffs. Unit sales were 2.3 per cent better. Earnings per share, pre-windfall tax, fell from 28.7p to 21.0p.
Forming Viridian would "allow the continued focus on cost performance and high standards in the regulated businesses and increased focus on growth opportunities in our unregulated businesses", the company said in a statement.
Viridian, which means verdant and full of vigour, was chosen for its connotations, finance director Mr Nigel Wilson said, adding that the company's marketing slogan, "new energy, fresh thinking" reflected the new name.
The company's regulated business of electricity supply will continue to trade under the Northern Ireland Electricity name.
NIE is the first of the privatised utilities currently reporting interims to hazard a buy-back while uncertainty remains over the new Labour government's tax intentions.
In addition, it has a specific dispute with its regulator Ofreg and has asked for a judicial review on the watchdog's surprising decision to overrule the findings of a Monopolies and Mergers Commission (MMC) ruling on prices.
The MMC ruled that prices should be cut by 25 per cent during the current year, compared with Ofreg's initial call for a 31 per cent decrease, but the regulator refused to accept the findings and went for 29 per cent cuts.
Mr Wilson said the outcome of the judicial review should be delivered towards the end of this year or early next.
The amount of shareholder value at stake over the review is around £26 million, Mr Wilson said, which "we decided on balance . . . wasn't a large enough amount of value to delay" the buy-back.
He added that the new company structure should give it more flexibility over share buy-backs in future.
NIE was the smallest and last of the regional electricity companies (RECs) to be privatised by the previous Conservative administration but is now one of just two remaining independent of the 13 created in the state sell off.
Mr Wilson said there had been no formal approaches to NIE over bids.
The company said Ofreg's intended referral of generation in the area to the MMC "will allow a full and open debate" over contracts which the company claims add to the cost disadvantage with companies in England and Wales.
Ofreg has said it might send Northern Ireland's generators to the MMC but has not yet made a final decision.
