Press Releases
10/08/2006
Interim results for the six months ended 30 June 2006
Full announcement including financials in PDF format 
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(London – 10 August 2006) International Power today announces its financial results for the six month period ended 30 June 2006 and reports on key developments in the year to date.
Sir Neville Simms, Chairman of International Power, said, "A strong performance across the group delivered excellent growth in first half earnings and cash flow. In the UK, Saltend and First Hydro performed particularly well and we also had continued improvement in the US. Overall the rest of the portfolio is performing in line with expectations and we continue to expect 2006 to be a year of strong growth."
Highlights
- Acquisition of 632 MW coal fired Coleto Creek power plant, Texas successfully completed
- Strong financial performance
Excluding exceptional items and specific IAS 39 mark to market movements(i)- Profit from operations of £392 million (2005: £232 million) – up 69%
- EPS of 11.9p (2005: 6.5p) – up 83%
- Free cash flow(ii) of £268 million (2005: £134 million) – up 100%
- Profit from operations of £458 million (2005: £273 million) – up 68%
- EPS of 14.9p (2005: 9.1p) – up 64%
| Profit from operations(iii) (excluding exceptional items and specific IAS 39 mark to market movements) |
Six months ended 30 June |
Year ended 31 December |
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| 2006 £m |
2005 (restated)(i) £m |
2005 (restated)(ii) £m |
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 |
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| North America | 28 | 8 | 48 |
| Europe | 242 | 116 | 283 |
| Middle East | 24 | 13 | 24 |
| Australia | 64 | 70 | 140 |
| Asia | 56 | 46 | 100 |
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| Regional total | 414 | 253 | 595 |
| Corporate costs | (22) | (21) | (59) |
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| Profit from operations | 392 | 232 | 536 |
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| (i) | For analysis and explanation of exceptional items and specific IAS 39 mark to market movements, please see notes 1 and 3 to this statement. All subsequent reference to 2006 financial performance is on a pre-exceptional and pre-specific IAS 39 mark to market movements basis (unless stated otherwise). The results for the six months ended 30 June 2005 and for the year ended 31 December 2005 are also stated on this basis. |
| (ii) | Free cash flow is set out in note 4 to this statement. |
| (iii) | Profit from operations comprises the sum of profit before interest and tax (PBIT) of subsidiaries and profit after tax (PAT) of joint ventures and associates. |
North America
Profit from operations in North America continued to grow to £28 million from £8 million, primarily driven by an improvement in earnings in Texas and, to a lesser extent, in New England. Our contracted assets, EcoEléctrica, Hartwell and Oyster Creek also operated well and delivered a consistent financial performance.
In Texas, high electricity demand, due to a particularly warm Q2, helped Midlothian and Hays achieve higher profit from operations. The achieved spark spread in Texas was up on last year with a significantly increased output. The load factor at both our Texas plants was 55%, compared to 40% at Midlothian in H1 last year (the Hays plant was mothballed until May 2005). In New England, the average achieved spark spread for the first half was similar to H1 2005 but the load factor at 60% was up significantly from 30% in H1 last year, mainly due to an improvement in off peak spreads in the early summer period. Our expected output for 2006 in both markets is now heavily contracted.
Overall, Texas and New England continue their recovery and we expect both markets to return to balance in the 2007 - 2009 timeframe. The warm weather in the early part of Q2 was followed by a heat wave in late July which led to new demand peaks in both Texas and New England. In Texas peak demand touched 62,396 MW, up 3.5% on 2005 peak demand, and in New England peak demand reached 27,971 MW, up 4.2% on 2005 peak demand. With consistent demand growth, Texas and New England will require the addition of new capacity over the next 3 – 5 years in order to maintain sufficient reserve margins.
The New England Forward Capacity Market Settlement (formerly known as LICAP) was approved by the Federal Electricity Regulatory Commission on 15 June. Under this settlement there is a transition period starting in December 2006 when capacity in NEPOOL will receive regulated payments as detailed below. Beyond 2010, capacity will be fully auctioned.
| Period | Regulated Tariff $/kW month |
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| December 2006 to May 2008 | 3.05 |
| June 2008 to May 2009 | 3.75 |
| June 2009 to May 2010 | 4.10 |
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The acquisition of the 632 MW coal fired Coleto Creek plant in Texas was successfully competed in July for a total consideration of $1.14 billion (£638 million), and is expected to deliver an attractive return and be immediately earnings and free cash flow enhancing. Plant operations and energy trading are now fully integrated.
Europe
Profit from operations more than doubled to £242 million from £116 million, with a strong increase in UK earnings driven by Saltend (which was acquired in July 2005) and higher earnings at First Hydro and Rugeley. Profit from operations at International Power Opatovice in the Czech Republic increased with strong winter demand for power and heat output in Q1. The other European assets in Portugal, Spain, Italy and Turkey continue to perform well.
Saltend benefited from its lower gas cost (secured under the indexed gas contract with BP), and operated at a load factor in excess of 90%. The load factor at Saltend is expected to be considerably lower in H2 due to a planned outage in Q3. First Hydro delivered a strong performance with market volatility and tightening reserve margins ensuring continued high demand for reserve and response capacity. Rugeley also delivered an improved performance, with average achieved spreads of £20/MWh, compared to £13/MWh in H1 last year.
The non-recourse debt facility at Pego was successfully refinanced in June, achieving improved amortisation terms, a lower interest rate, and additional funding for the installation of emission reduction equipment to comply with the Large Combustion Plant Directive. Any incremental costs of complying with this directive will be passed through to the offtaker (REN) under the long-term PPA.
Middle East
Profit from operations in the Middle East increased to £24 million from £13 million last year. Al Kamil, Shuweihat and Umm Al Nar continue to perform well, with full commercial operation at the plant extension at Umm Al Nar expected in H2 2006. Growth in operational capacity was boosted by our acquisition in January 2006 of a 40% share in the 910MW and 30MIGD Hidd facility in Bahrain and with new plants commencing operation in Saudi Arabia and Qatar.
At the Tihama cogeneration project for Saudi Aramco, which consists of four separate plants with total capacity of 1,074 MW of power and 4.5m lbs/hr of steam, two of the four sites (Shedgum and Uthmaniyah) are now operational and have averaged almost 100% availability. The other two plants (Ras Tanura and Ju’aymah) are on track to commence operation progressively in Q3 and Q4 respectively of this year.
At the 1,025 MW, 60 MIGD Ras Laffan B project, which is currently under construction in Qatar, 600 MW of power is now operational. Overall the project is on track for completion in 2008.
At Hidd in Bahrain construction of the 60 MIGD desalination extension is underway and this additional capacity is expected to be operational by the end of 2007.
Australia
Profit from operations decreased from £70 million to £64 million due to the expected reduction in achieved prices at Hazelwood as 2005 benefited from contracts put in place in earlier years at higher prices. Hazelwood continued to run at a high load factor and achieved an average selling price of A$33/MWh compared to A$36/MWh last year.
Loy Yang B, our other major asset in Victoria, operated base load with a load factor of almost 100%. The non-recourse debt facility at Loy Yang B was successfully refinanced, achieving improved amortisation terms. All other contracted assets continue to perform in line with expectations.
Driven predominantly by high demand, winter spot electricity prices in 2006 have improved, and this has recently had a modest positive impact on electricity forward curves for 2007 and 2008, which are up by approximately A$1.50/MWh and A$2.00/MWh respectively.
Asia
Profit from operations at £56 million was up from £46 million last year mainly due to higher availability at Paiton and a full six months contribution from Uch, which was acquired in February last year. Our plants in Pakistan are operating at high load factors due to very high summer demand for electricity and low availability of hydro generation.
As stated previously, with effect from 1 July 2006 KAPCO has become a full tax payer following the expiry of its tax holiday.
Following the announcement by MMC Corporation Berhad (MMC) in May 2006 that it intends to acquire all of Malakoff Berhad’s (Malakoff) assets and liabilities for a total cash consideration of 9.3 billion Malaysian Ringgit (MYR) (£1.4 billion), International Power has indicated that it is receptive to this initiative by MMC. International Power has an 18% shareholding in Malakoff and this offer equates to approximately £250 million for International Power’s shareholding which would be substantially above its book value.
Interest
Net interest expense at £112 million is £23 million higher than H1 2005, reflecting the impact of additional debt relating to the acquisition of Saltend. However, due to the strong profitability of the Group, interest cover increased from 2.2x in the six months to 30 June 2005 to 3.0x for the same period this year.
Tax
The group tax charge for the first six months was £64 million (2005: £30 million). The effective tax rate, based on our forecast rate for the full year, is 30% compared to 31% for the year ended 31 December 2005.
Exceptional items and specific IAS 39 mark to market movements
An exceptional gain of £14 million before tax has been recorded in the period, including compensation in respect of the TXU settlement. In June 2006 the Company received a settlement of £10 million following the conclusion of an international arbitration action under ICC rules, concerning breach of contracts entered into in 2000 relating to transfer of operating rights over three power plants in Turkey. Exceptional income of £5 million has been recorded, net of cost recoveries.
For H1 2006 the Group has separately disclosed specific IAS 39 mark to market movements contained in the income statement. This is consistent with the presentation adopted by many companies within the UK energy sector and better represents the underlying business performance. The comparative results for 2005 are stated on the same basis.
The specific IAS 39 mark to market movements reported outside the underlying results contributed a profit before tax of £51 million in the six months ended 30 June 2006 (2005: loss of £5 million).
Cash Flow
A summary of the Group cash flow is set out below:
| Six months ended 30 June 2006 £m |
Six months ended 30 June 2005 £m |
Year ended 31 December 2006 £m |
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| Profit for the period | 267 | 150 | 330 |
| Adjustment for non-cash items (see note below)(i) | 103 | 55 | 180 |
| Dividends from joint ventures and associates | 42 | 41 | 92 |
| Movement in working capital | 41 | 7 | (21) |
| Capital expenditure – maintenance | (58) | (23) | (72) |
| Other cash movements | - | 3 | 3 |
| Tax and interest paid | (127) | (99) | (227) |
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| Free cash flow | 268 | 134 | 285 |
| Receipt from TXU administrators – exceptional | 14 | 44 | 58 |
| Receipt of compensation - exceptional | 5 | - | - |
| Finance cost – exceptional | - | - | (5) |
| Refinancing costs capitalised on acquisition debt | - | - | (7) |
| Capital expenditure – growth | (52) | (95) | (188) |
| Returns from joint ventures and associates (net of investments) | 12 | (5) | 48 |
| Acquisitions | (10) | (35) | (571) |
| Disposals | - | 137 | 211 |
| Dividends paid | (67) | - | (37) |
| Proceeds from share issue | 8 | - | 2 |
| Funding from minority interests | 5 | 6 | 80 |
| Foreign exchange and other | 93 | (116) | (181) |
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| Decrease/(increase) in net debt | 276 | 70 | (305) |
| Opening net debt | (2,979) | (2,745) | (2,745) |
| Transitional adjustment on first time adoption of IAS 39 | - | 44 | 44 |
| Net cash on acquisition of subsidiaries | - | - | 27 |
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| Closing net debt | (2,703) | (2,631) | (2,979) |
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| (i) | Non-cash items are set out in note 4 to the Accounts. They include income statement charges for interest, tax, depreciation, the share of profit of joint ventures and associates, the exceptional profit on the TXU settlement, and the exceptional profit on compensation for breach of contract. |
Free cash flow for H1 2006 doubled to £268 million (H1 2005: £134 million). This reflects the addition of Saltend which was acquired in H2 2005, and the improved UK and US merchant markets supported by the continued strong performance of the contracted portfolio. This strong operational performance was partially offset by the £28 million increase in interest and tax payments, which largely reflect the additional debt associated with the Saltend acquisition.
Capital expenditure on maintenance, at £58 million is £35 million higher than 2005 due to planned outages in the US and at Rugeley and Deeside. Growth capex consists primarily of expenditure on Tihama. It is £43 million lower than H1 2005, due to the progressive completion of Tihama in H1 2006. In addition, 2005 included some expenditure on Canunda and Hazelwood mine extension. Foreign exchange and other includes an exchange impact of £142 million on retranslation of net debt balances reflecting the weakening of the US and Australian dollars. Dividend receipts at £42 million are in line with 2005, but we expect these receipts to be ahead of 2005 for the full year.
Summary balance sheet
A summarised, reclassified Group balance sheet is set out below:
| As at 30 June 2006 £m |
As at 30 June 2005 (restated)(i) £m |
As at 31 December 2005 £m |
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| Non-current assets | |||
| Intangibles and tangibles | 4,214 | 3,911 | 4,590 |
| Investments | 1,421 | 1,292 | 1,379 |
| Long-term receivables and others | 791 | 567 | 623 |
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| 6,426 | 5,770 | 6,592 | |
| Net current liabilities (excluding net debt items) | (212) | (386) | (327) |
| Non-current liabilities (excluding net debt items) | (921) | (670) | (911) |
| Net debt | (2,703) | (2,631) | (2,979) |
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| Net assets | 2,590 | 2,083 | 2,375 |
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| Gearing | 104% | 126% | 125% |
| Debt capitalisation | 51% | 56% | 56% |
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| (i) | In accordance with IFRS 3, the fair values of certain assets and liabilities acquired in 2004 have been revised following the completion of the initial accounting during the year ended 31 December 2005. Please see notes 1 and 5 to this statement. |
The decrease in debt capitalisation since 2005 year end principally reflects the strong profitability and cash flow of the Group in the six months to 30 June 2006. The decrease in net current liabilities to £212 million principally reflects changes in derivative values due to mark to market movements and physical delivery of derivative contracts during this period.
Dividend
On 23 June 2006, we paid a dividend of 4.5p per share for the year ended 31 December 2005.
Outlook
The underlying market conditions in our UK and US merchant markets, together with continued strong operational performance at our PPA assets should deliver further growth in the second half and we will also benefit from a first time contribution from Coleto Creek in the US in H2. Saltend in the UK will undergo a major planned outage in Q3 and the level of contribution from First Hydro is dependent upon continued market volatility. Overall the portfolio is performing well and we continue to expect 2006 to be a year of strong growth.
Achieved spark spreads for the six months ended 30 June 2006
North America
| New England | H1 2006 | H1 2005 |
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| Spark spread ($/MWh) | $8 | $8 |
| Load factor | 60% | 30% |
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| Texas (Midlothian) | H1 2006 | H1 2005 |
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| Spark spread ($/MWh) | $12 | $8 |
| Load factor | 55% | 40% |
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| Texas (Hays) | H1 2006 | H1 2005* |
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| Spark spread ($/MWh) | $12 | N/A |
| Load factor | 55% | N/A |
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* Hays returned to service May 2005
United Kingdom
| Rugeley | H1 2006 | H1 2005 |
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| Dark spread (£/MWh)** | £20 | £13 |
| Load factor | 60% | 60% |
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| Deeside | H1 2006 | H1 2005 |
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| Dark spread (£/MWh)** | £17 | £8 |
| Load factor | 25% | 60% |
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** Excludes CO2 costs
Australia
| Hazelwood | H1 2006 | H1 2005 |
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| Achieved power price (A$/MWh) | A$33 | A$36 |
| Load factor | 75% | 80% |
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For further information please contact:
| Media Contact: | Investor Contact: |
| Mark Harris, Finsbury Ltd. | Aarti Singhal |
| Andrew Mitchell, Finsbury Ltd. | +44 (0)20 7320 8681 |
| +44 (0)20 7251 3801 |
About International Power
International Power plc is a leading independent electricity generating company with 17,884 MW (net) in operation and 1,119 MW (net) under construction. International Power has power plants in operation or under construction in Australia, the United States of America, the United Kingdom, the Czech Republic, Italy, Portugal, Spain, Turkey, Bahrain, Oman, Qatar, Saudi Arabia, the UAE, Indonesia, Malaysia, Pakistan, Puerto Rico and Thailand. International Power is listed on the London Stock Exchange and the New York Stock Exchange (as ADRs). The ticker symbol on both stock exchanges is "IPR".
Company website: www.ipplc.com
