Press Releases

04/09/2002

Interim Results for the six months ended 30 June 2002

Full announcement including financials in PDF format .

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(London – 4 September 2002) International Power today announces its financial results for the six-month period ended 30 June 2002 and reports on key developments to date.

“Once again I am pleased to announce a significant increase in earnings per share, up 74% from 5.7p in the first half of 2001 to 9.9p and backed by an operating cash inflow of £221 million. This result reflects solid operational performance and strong financial management by all the regions in our global asset portfolio,” said Sir Neville Simms, Chairman of International Power.

“This is a particularly good result given the challenging merchant energy environment. Our conservative approach has substantially shielded us from the financial issues affecting our sector. It has also increased our potential for future growth through project development and acquisitions.” Sir Neville added.

Financial Highlights

Earnings per share (excluding exceptional items) up 74% to 9.9p from 5.7p in H1 2001; compound annual growth of 73% from 3.3p in H1 2000
PBIT (excluding exceptional items) up 51% to £229 million from £152 million in H1 2001
Operating cash flow of £221 million up from £107 million in H1 2001
Strong balance sheet - Gearing 51%; Debt Capitalisation 34%
Exceptional items – net charge of £21 million (pre-tax)

£24 million KAPCO dividend (Pakistan) – settlement of past receivables
Deeside impairment of £45 million

North America

Operating profit in North America increased 64% to £59 million from £36 million in the first half of 2001. This increase was attributable to the addition of new capacity and the receipt of compensation payments from Alstom (the prime contractor). The compensation payments principally relate to income lost during the period as a result of delays in the construction programme and subsequent unavailability of plant.

The performance of the North American assets during the first eight months of 2002 continued to improve, with Milford providing a highlight at 100% reliability and availability. The GT24 fleet has delivered reliabilities in excess of 93%, and we expect this performance to improve as the newer units accumulate more operating time.

The last two units at Hays (units 3 and 4) achieved commercial operation in August and this 1,100MW plant in Texas is now in full commercial operation, taking our total US operational capacity to 3,845MW. Bellingham (570MW, Massachusetts), the final plant of our US construction programme, is in commissioning and on track to commence commercial operation during 2002.

On August 14, the New York State Siting Board approved our Article 10 application for the 580MW Brookhaven project on Long Island in New York. This approval, which completes the permitting process for the project, should be confirmed once the statutory 30-day appeal period expires in September. Currently we are in discussions with potential customers for long-term power offtake from Brookhaven. Pending an agreement on offtake, the plant is anticipated to commence construction during the first half of 2003.

With regards to Ramapo, the combination of limited opportunities to secure creditworthy long-term off-take agreements and continuing wildlife habitat concerns at the proposed site, has caused us to suspend further development expenditure on this project. Therefore, we have notified the New York State Siting Board of our intention to withdraw our application for this project.

The lack of creditworthy trading counter-parties has led to a severe contraction in liquidity in the United States. This has affected our key markets in the region (Texas and New England) and has made the execution of forward contracts difficult.

In Texas, whilst we continue to benefit from higher prices in Northern Texas (a result of transmission constraints in the state), the overall pricing environment remains weak and generation oversupply is, at present, preventing forward prices from making any significant recovery from the current low levels.

In New England (NEPOOL), a new zonal electricity trading system called Congestion Management System is being launched and is expected to take effect in the first quarter of 2003. The introduction of this system has created uncertainty about how NEPOOL will operate and has added to the existing weakness in liquidity. Although forward prices remain low, in due course, we expect this new zonal pricing market to be neutral to beneficial, as our assets are situated in high demand areas.

As a consequence of weak wholesale market conditions, and financial limitations constraining the industry, the development of new plants across the United States and particularly in Texas and New England has almost ceased. The level of new build has also declined radically and in some cases construction has been halted prior to completion. In the longer term these factors, together with possible retirement of obsolete capacity, should help restore the supply demand balance in these States.

Europe and Middle East

Operating profit in the Europe and Middle East region decreased 7% to £77 million from £83 million in H1 2001. This was principally due the inclusion of earnings from UFG in the prior year numbers (this investment was sold in July 2001) and a decline in margins at Deeside. The acquisition of Rugeley and a success fee in respect of the Shuweihat project did however offset most of these negative impacts. Profit after interest and tax was up from the first half of last year.

Assets in this region delivered solid operational performance. In particular, Pego, EOP and Marmara all achieved over 95% availability.

At EOP the current offtake contract with VCE (a local distribution company) has been extended through to the end of December 2005. This contract, which covers a significant proportion of EOP’s total output, has been agreed on a price level that meets our economic return criteria.

In Italy, we continue to pursue our greenfield development programme which now comprises around 7,200MW (gross) in aggregate. Of the nine sites under development, seven are in the permitting process. As this process advances, we have initiated discussions with several potential offtakers for power. At present, these discussions are moving slowly due to a lack of clarity on the new electricity market to be proposed by the Italian Government.

Generally, however, we are encouraged by our prospects in the Italian electricity market. In particular, over the last 18 months, the total amount of potential new capacity being evaluated by the government has dropped dramatically from 77,000MW to less than 30,000MW and demand for power has continued to increase. These trends should not only result in a favourable reserve margin but also contribute to the introduction of a market structure that is conducive to wholesale power generators.

Overcapacity in England and Wales kept wholesale power prices extraordinarily low during the period. In April, due to these uneconomic prices, we mothballed half the capacity of our Deeside power station. The market remains oversupplied as the pace of mothballing of clearly uneconomic plant has been slow. In recognition of this, and uncertainty on the timing of price recovery, we have written down the value of our Deeside plant by £45 million.

Following the completion of construction, our Al Kamil power station in Oman commenced operation in August. To date, the plant has delivered 150 hours of electricity to the local grid company and is expected to be commercial by the end of Q3 or in the early part of Q4 this year. The entire capacity at Al Kamil is contracted under a 15 year Power Purchase Agreement with the Omani Ministry of Electricity and Water.

Construction of the Shuweihat plant (1,500MW power and 100 million imperial gallons per day water desalination) remains on schedule and it is expected to commence operation in the second half of 2004.

Australia

Operating profit in the region grew by 29% to £49 million from £38 million in H1 2001, primarily due to increased profitability at Hazelwood (Victoria) and Pelican Point (South Australia). In the second quarter (start of Australian winter), both Victoria and South Australia experienced high levels of demand leading to increased wholesale prices.

Assets in this core region also delivered good technical performance with average plant availability of over 90%.

Earlier today, SEA Gas Pty Ltd, our joint venture with Origin energy, signed an agreement with TXU in Australia. According to this agreement TXU will become an equity investor in the proposed SEA Gas pipeline and the capacity of the pipeline will be enhanced (by increasing the diameter from 14” to 18”) to accommodate TXU’s requirements for additional gas. International Power, Origin Energy and TXU will hold equal equity interest (33% each) in SEA Gas Pty Ltd. As a result TXU will not be proceeding with its plan for a separate gas pipeline, which was also intended to run from Victoria to South Australia.

Rest of the World

Operating profit increased to £56 million from £11 million in H1 2001. The key driver for this increase was the resumption of dividends (including the settlement of past receivables) from Kot Addu Power Company (KAPCO) in Pakistan. A gross dividend of £41 million has been received (the first since 1998), of which £24 million that related to the settlement of past receivables, has been treated as exceptional.

According to the settlement agreement between International Power, KAPCO and Pakistan’s Water and Power Development Authority (WAPDA - the sole customer), WAPDA has and will continue to settle outstanding balances with KAPCO. To the extent that dividends are received from KAPCO in respect of the payment of these outstanding balances, they will be treated as exceptional because of their non-recurring nature.

All assets continue to deliver high performance, both financially and operationally, with average plant availability of over 90%. Specifically, our 110MW gas fired plant in Thailand, which commenced operation towards the end of 2000 has been performing well and achieved over 98% availability during the first half of this year.

In Malaysia, Malakoff’s Lumut power station has been performing well, with high levels of dispatch. Expansion at the site is on track; 420MW (gross) of new capacity achieved commercial operation in the first quarter and construction of the remaining 230MW (gross) is progressing ahead of schedule. On completion, the total capacity at Lumut will be over 1,900MW(gross), all of which has been contracted under long-term Power Purchase Agreements with Tenaga Nasional Berhad.

Sustainability

Health and Safety: Pego has won a fifth gold medal from the Royal Society for the Prevention of Accidents (ROSPA) for continuous improvement in safety standards at the 600MW coal fired plant. Operation and Maintenance at Pego is performed by International Power and we are pleased to receive this award, which reflects the importance we place on health and safety across our global portfolio.

Employee Relations: Hazelwood Power has won a prestigious Victorian State Government Premier’s Award for its outstanding performance in strengthening employee relations. This award, which is a result of the effort put in by the employees, is particularly important given the history of industrial relations in the Latrobe Valley.

Director Shareholding

Peter Giller, CEO of International Power, is remunerated entirely in shares under a Restricted Share Plan. According to the terms of this Plan, he is to receive a total of 677,564 shares in three equal annual tranches starting 2 October 2000. Having received the first tranche in October last year, Mr Giller will receive the second tranche on 2 October 2002. On receipt of this second tranche, as last year, he is likely to dispose of a proportion of these shares primarily to meet income tax liabilities.

Outlook

The outstanding performance to date from all regions of our geographically diverse asset portfolio, gives us confidence in our ability to achieve strong financial results for 2002 and meet consensus market expectations, despite the current weakness in some of our markets.

With respect to earnings expectations for 2003, we are taking a cautious approach. Our outlook is based on the continued operational strength of our portfolio and our forward contracted position in regional markets. It assumes no significant price recovery in Texas, New England or the UK and no acquisitions. Given these assumptions, we expect earnings per share to be in the range of 11p to 13p for 2003. This financial performance represents approximately 20% compound annual growth from calendar year 2000.

With regard to our future growth prospects, the accelerating pace at which new generation supply is being curtailed should contribute to a faster recovery in commodity pricing. In the meantime, with our robust balance sheet and strong cash flow we remain well positioned to take advantage of the increasingly favourable acquisition environment. These factors, along with new capacity coming online through our greenfield development programme, should enable us to resume our growth profile in 2004 and beyond.

For further information:

Media contact (Europe):
Aarti Singhal
+44 207-320-8681

Investor contact (Europe):
Grant Jones
+ 44 207-320-8619

Media & Investor contact (United States):
Paul Parshley
+1 508-922-3124

Notes to Editors

International Power plc is a leading independent electricity generating company with 9,955MW (net) in operation, 1,190MW (net) under construction and approximately 6,000 MW (net) in advanced development. Among the countries where International Power has operating facilities are Australia, the United States, the United Kingdom, the Czech Republic, Portugal, Turkey, Malaysia, Pakistan, and Thailand. International Power was created from the demerger of National Power, and its shares began trading independently on the London Stock Exchange and as ADRs on the New York Stock Exchange on 2 October 2000. The ticker symbol on both stock exchanges is “IPR”.