Press Releases
11/11/2003
International Power plc Results for the Nine Months ended 30 September 2003
Full announcement including financials in PDF format 
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(London – 11 November 2003) International Power today announces its results for the nine-month period ended 30 September 2003 and reports on key developments to date.
Sir Neville Simms, Chairman of International Power said, “Our cash-backed earnings of 7.2p per share for the nine months ended 30 September mean that we remain on track to meet our 2003 earnings per share guidance.”
Sir Neville added, “In the UK, power prices have shown some improvement and we expect to benefit from this in the future. Our Australian assets and other contracted assets in Europe, the Middle East and Rest of the World continue to perform well and deliver good profitability and cash flow. The pricing environment in the US remains weak and in the absence of significant improvement in our US markets, we expect 2004 to be a difficult year.”
Financial and Operational Summary
- Profit before interest and tax of £209 million (pre exceptional items)
- Earnings per share of 7.2p (pre exceptional items, basic)
- Operating cash flow of £213 million
- Gearing 42%; Debt Capitalisation 29%
- US$252 million (£158 million) senior convertible bond issued
- US$450 million (£271 million) three-year Corporate Revolver facility secured
| Financial Summary | Quarter ended 30 September | Nine months ended 30 September | ||
| 2003 | 2002 | 2003 | 2002 | |
| £m | £m | £m | £m | |
| Profit on ordinary activities before interest and tax | ||||
 Excluding exceptional items |
71 | 83 | 209 | 312 |
| Including exceptional items |
78 | 90 | 224 | 298 |
| Earnings per share - Basic (EPS) | ||||
| Excluding exceptional items |
2.1p | 2.9p | 7.2p | 12.8p |
| Including exceptional items |
2.5p | 3.3p | 8.4p | 11.9p |
| Operating cash flow from ordinary activities | 82 | 96 | 213 | 317 |
In North America, for the nine months ended 30 September, the combination of a lower level of compensation payments from Alstom, which were down to £22 million from £78 million, and very low wholesale prices led to a fall in operating profit to £13 million.
Our markets in the US continue to experience very weak spark spreads and low trading liquidity. Going forward, these factors could together put severe pressure on our profitability in Texas and New England. We are therefore actively considering mothballing part of our operational capacity in the US.
As Blackstone and Hays near completion of their respective Performance Recovery Period, our US business will be compensated for the long term performance shortfall at these plants. This will be done through the payment of a lump-sum amount (Buy-down), which approximates to the commercial value of the performance shortfall over the remaining life of the asset. During the third quarter we booked Buy-down amounts totalling £66 million that reduce the carrying value of the fixed assets and will be used to repay debt on our US merchant fleet. These amounts have therefore not been recorded as income in the profit and loss account.
Our European business generated an operating profit of £50 million for the nine months, underpinned by good performance at our long-term contracted assets in Portugal and Turkey, and from EOP in the Czech Republic. Profitability in the region was impacted by very low wholesale prices in the UK, particularly in the earlier part of the year. Year on year profitability in this region was down, as Rugeley had a tolling agreement with TXU Europe for the whole of the comparative period and Deeside had an off-take contract with Innogy for the first quarter of 2002.
In the UK, we remain largely contracted through to the end of March next year. In order to provide additional support for our contracted capacity, in October we returned to service the 250MW mothballed unit at our 500MW CCGT Deeside plant. We expect this unit to remain in service for the winter period, at least through to the end of March 2004.
The recent increase in power prices in the UK is reflected to some extent in the forward price curve. As we are largely contracted through the winter of 2003/04, this improvement will have a more significant impact on earnings in 2004 than in the rest of 2003.
Further to our offer to acquire an interest (in the form of debt and equity) in the Drax power station, we have posted a £100 million letter of credit in support of our offer. The ongoing financial restructuring of Drax continues to make progress and we expect to finalise our level of ownership in the asset on completion of this restructuring, which is expected by the end of December 2003.
In the Middle East, operating profit for the nine months ended 30 September was comparable with 2002 performance, although it should be noted that 2002 benefited from the settlement agreement at Hubco. In 2003 we have expanded our asset portfolio in the Middle East with the Al Kamil and Umm Al Nar plants, which increased regional operating profits in the third quarter to £26 million from £14 million last year.
Construction of the Shuweihat S1 power and water plant in Abu Dhabi continues on schedule towards commercial operation in the third quarter of 2004.
In Australia, underpinned by our strong contractual position, operating profit increased to £78 million during the nine month period. We retain a very strong forward contracted position through 2004 and we are in the process of increasing our contract cover for 2005.
In Rest of the World (comprising Malaysia and Thailand) operating profit for the nine months increased to £25 million. This increase in earnings was driven by higher profitability at Malakoff in Malaysia, where new operational capacity was added at the Lumut power plant site late last year.
In October, Malakoff completed two acquisitions in Malaysia. It acquired a new 350MW CCGT plant - Prai Power - and 90% equity interest in the development of a 2,100MW coal fired plant - Tanjung Bin. The Tanjung Bin plant is expected to reach financial close in November 2003 and is due to commence commercial operation in a phased manner from 2006. Both acquisitions are backed by long term Power Purchase Agreements with Malaysia’s leading utility, TNB.
Cash flow
| Cash flow - Nine months ended 30 September | 2003 | 2002 |
| £m | £m | |
| Operating cash flow from subsidiaries | 143 | 224 |
| Dividends - JVs, associates and investments | 70 | 93 |
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| Operating cash flow | 213 | 317 |
| Capex - maintenance | (40) | (40) |
| Interest and tax | (76) | (85) |
| Exceptional operating items | - | 6 |
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| Free cash flow | 97 | 198 |
| Capex - growth | (48) | (73) |
| Acquisitions and Greenfield developments | - | (140) |
| Disposals (Hubco) | 21 | - |
| Share buyback | (6) | - |
| Other movements* | (43) | 82 |
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| Net cash flow | 21 | 67 |
| Opening debt | (812) | (897) |
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| Closing debt | (791) | (830) |
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| *mainly FX |
The Group generated positive operating and free cash flow of £213 million and £97 million respectively, reflecting our continued focus on cash backed earnings. As expected, cash flow performance is down in comparison to last year due to lower operating profits in North America and the UK.
| Balance Sheet | As at 30 | As at 30 | As at 31 |
| September | September | December | |
| 2003 | 2002 | 2002 | |
| Fixed assets | |||
| Intangibles and tangibles | 2,481 | 2,554 | 2,474 |
| Investments | 506 | 497 | 507 |
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| 2,987 | 3,051 | 2,981 | |
| Net current liabilities | (16) | (124) | (138) |
| Provisions and creditors > one year | (280) | (310) | (262) |
| Net debt | (791) | (830) | (812) |
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| Net assets | 1,900 |
1,787 | 1,769 |
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| Gearing | 42% | 46% | 46% |
| Debt capitalisation | 29% | 32% | 32% |
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Net assets as at 30 September 2003 have increased by £131 million since 31 December 2002. This increase reflects the £93 million of profit generated during the nine month period, together with an exchange gain of £38 million, reflecting the impact of foreign exchange on our net investment in foreign entities and their related borrowings.
Our gearing of 42% and debt capitalisation of 29% remain at conservative levels.
Capital Structure
In August, we issued a new US$252 million (£158 million) convertible bond at an interest rate of 3.75% with a minimum seven year term, to partially refinance the existing US$357m (£228 million) convertible bond. The US$357 million (£228 million) convertible bond had a put date in November 2003, when US$254 million was put, leaving a balance of US$103 million (£62 million) remaining for a further two year period at an effective interest rate of 4.6%.
In October, we signed a new three-year unsecured US$450 million (£271 million) Corporate Revolver to replace the previous US$540 million (£325 million) facility, which was due to expire in October 2004.
Board change
As announced on 21 October, David Crane has resigned from the Board and will be leaving the Company at the end of November 2003. The Board is currently reviewing the structure of the executive team and is considering internal and external candidates for the role of CEO.
Outlook
We reconfirm our earnings guidance of 9p to 11p per share for 2003.
With respect to 2004, our businesses in Europe, the Middle East, Australia and the Rest of the World remain on track and should, in aggregate, generate earnings above 2003 levels. However, without a significant improvement in spark spreads in 2004, the US business is expected to have a lower financial performance than 2003. We are therefore providing earnings per share guidance of between 7p and 9p for 2004.
For further information please contact:
Aarti Singhal
+44 (0)207-320-8681
About International Power
International Power plc is a leading independent electricity generating company with 10,890MW (net) in operation and 300MW (net) under construction. Among the countries where International Power has facilities in operation or under construction are Australia, the United States, the United Kingdom, the Czech Republic, the UAE, Portugal, Turkey, Malaysia, Pakistan and Thailand. International Power was created from the de-merger of National Power, and its shares began trading independently on the London Stock Exchange and ADRs on the New York Stock Exchange on 2 October 2000. The ticker symbol on both stock exchanges is "IPR".
