British Energy profits dropped more than 60 per cent in the three months to June from £179 million to £62 million, the nuclear operator said today.

The group, which had a £12 billion takeover bid from France’s EDF rejected by its shareholders at the beginning of the month, said the fall was due to lower output. It has been struck by a string of technical problems with its ageing reactors and the scheduled closure of plants.

The sharp fall in profits will also have an impact on the amount of cash the Government takes from the company at the end of the year. The Government is entitled to 35 per cent of the free cash flow from the generator, following its bailout of the company in 2002, and received £102 million for the last financial year. That figure is expected to fall by as much as 60 per cent this year.

Bill Coley, chief executive of British Energy, said: "We have continued to make good progress towards resolving the plant issues that have significantly impacted our performance in the year to date. "

He confirmed that takeover discussions were continuing. It emerged earlier this week that Centrica, the owner of British Gas, was considering a £4 billion cash sweetener to persuade the Government to back its own proposals for a merger with the group.

Mr Coley said: "As we continue discussions in respect of a potential transaction, we remain clear that the expertise of our people, together with our sites, makes British Energy uniquely positioned to play a pivotal role in nuclear new build.

"We welcome the steps being taken by Government to drive forward the new nuclear agenda while, at the same time, we continue with our preparations for nuclear new build."

British Energy's poor performance was partially offset by higher selling prices - up 12 per cent at £45.7 per mega watt hour - for the power it produced. However, operating costs for the company's generators soared by 47 per cent.

The poor state of British Energy's ageing assets has been one of the factors that has deterred other energy companies from offering more for the company in the auction that has been going on since the spring.

British Energy gave warning today that bringing its Hartlepool and Heysham 1 reactors back into service will cost an extra £65 million, bringing the total bill to £115 million in this financial year. The reactors are due to be in service by the end of the year - in time for the winter peak - however British Energy indicated that a longer delay would lead to higher costs.

The loss of power from these two stations meant British Energy’s nuclear output fell to 9.5 terawatt hours (TWh) in the three months to June 29, compared with 13 TWh a year earlier.

Adjusted earnings before interest, tax, depreciation and amortisation almost halved to £129 million, down from £253 million in the same period last year.

The nuclear company also commented on the climbing price of uranium, which has increased significantly. At the beginning of this month the long-term price of uranium was $80 per pound, down from a high of $95 per pound in March this year.

British Energy struck purchase contracts for uranium at much lower prices and has a fuel cost advantage of approximately £115 million per year at these prices. However, the company gave warning that this benefit will reduce over the next nine years.

Government figures published earlier this month showed the share of electricity generated by Britain's nuclear power stations has fallen to 15 per cent of total demand, its lowest level in 21 years.

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