Press Releases

08/11/2007

Financial results for the nine months ended 30 September 2007

Full announcement including financials in PDF format .

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(London – 8 November 2007) International Power today announces its results for the nine months ended 30 September 2007 and reports on key developments to date.

Sir Neville Simms, Chairman of International Power, said, “Our business continues to benefit from our diversified portfolio, with EPS^(i)(iii) up 19% and free cash flow⁽ⁱⁱ⁾ up 22% on the same period last year. We remain confident that 2007 will be a year of further growth.”

Highlights

Profit from operations⁽ⁱ⁾ of £634 million (2006: £564 million) – up 12% (16% at constant exchange rates)
EPS^(i)(iii) of 19.8p (2006: 16.6p) – up 19% (25% at constant exchange rates)
Free cash flow⁽ⁱⁱ⁾ of £415 million (2006: £339 million) – up 22%
648 MW Maestrale wind portfolio and 28 MW Schkortleben wind farm acquisitions completed

All reference to financial performance in this commentary is on a pre-exceptional and pre specific IAS 39 mark to market movements basis (unless stated otherwise).

Profit from operations⁽ⁱ⁾	Nine months ended 30 September		Year ended 31 December
Profit from operations⁽ⁱ⁾	2007 £m	2006 £m	2006 £m

North America	104	78	101
Europe	377	308	450
Middle East	46	37	52
Australia	66	100	124
Asia	77	75	91

Regional total	670	598	818
Corporate costs	(36)	(34)	(45)

Profit from operations	634	564	773

⁽ⁱ⁾ Excluding exceptional items and specific IAS 39 mark to market movements. For analysis and explanation of exceptional items and specific IAS 39 mark to market movements, please see notes 1 and 3 to this statement.
⁽ⁱⁱ⁾ Free cash flow is set out in note 4 to this statement.
⁽ⁱⁱⁱ⁾Average number of shares used in EPS calculation is 1,497 million

North America

Profit from operations in North America increased to £104 million, from £78 million last year, primarily reflecting the acquisition of Coleto Creek and the introduction of the Forward Capacity Market in New England. Coleto Creek returned to service in May following a two month planned outage for both general maintenance and the commissioning of dust emission control equipment. New England benefited from the introduction of the Forward Capacity Market, and spark spreads increased from $11/MWh to $16/MWh year on year, on a slightly lower load factor of 60% compared to 65% last year. Our contracted assets, EcoEléctrica, Hartwell and Oyster Creek, all continue to perform well and delivered a consistent financial performance.

In Texas, mild weather led to demand being lower than last year, resulting in a flat spark spread at Midlothian of $13/MWh, and a fall in spark spreads at Hays from $14/MWh in 2006 to $11/MWh. Load factors at Midlothian were steady at 65%, but fell from 65% to 50% at Hays following a planned outage extended to repair defective welds on high pressure steam pipes in the first half of the year. All four units at Hays are currently operational. Two units at Hays require remedial work on the defective welds, which will be completed during a major planned outage commencing this month.

At 30 September, we had contracted over 95% of our expected merchant output in Texas and New England for 2007.

Europe

Profit from operations in Europe at £377 million was up from £308 million last year, primarily driven by strong contributions from Rugeley, Deeside and First Hydro and first time contributions from Levanto and Indian Queens. Our contracted assets in Iberia and Turkey operated well and continue to deliver good financial performance.

During the period the UK power market has seen dark spreads falling and spark spreads increasing. This has meant that Rugeley has benefited from our decision to forward contract its output in 2006, when power prices were higher, whilst Deeside continued to benefit from its largely uncontracted position as its achieved spark spread increased from £18/MWh to £28/MWh over the period. Saltend’s earnings over the first nine months were impacted by higher gas costs. At 30 September, we had contracted over 95% of our expected output at Rugeley and Saltend, and 85% at Deeside for 2007.

First Hydro’s earnings were up due to both the capture of higher prices during periods of tight capacity margin and power price volatility. Work has now been completed at First Hydro to extend the storage capacity of one of its upper reservoirs.

Earnings at ISAB fell in the first nine months of the year due to a planned outage and a revised tariff methodology. The Czech Republic experienced very mild weather during the early part of the year and as a consequence heat sales at International Power Opatovice were lower than for the same period last year.

International Power has continued to grow its European wind portfolio. In August, we completed the acquisition of the 648 MW Maestrale wind portfolio, consisting of 581 MW in operation and 67 MW in construction, located in Italy and Germany. A 14 MW operational wind farm, located at Delfzijl-Zuid in the Netherlands, and the development rights for an 8 MW wind farm in Germany, which is scheduled to be commissioned in the first half of 2008, have also been acquired. In September, the acquisition of the 28 MW Schkortleben wind farm in Germany was completed. In addition, in November an agreement was signed to acquire a further 15 MW operational wind farm also located at Delfzijl-Zuid in the Netherlands. All the acquired assets are now fully integrated into the European portfolio and on completion of this latest acquisition our wind portfolio will comprise 1,096 MW in operation and 99 MW under construction.

Our 800 MW greenfield CCGT project at Pego, in Portugal, and our partnership with Eneco for the construction of an 800 MW CCGT plant in the port of Rotterdam, continue to make good progress.

Middle East

In the Middle East, profit from operations increased to £46 million from £37 million last year primarily driven by Tihama, in Saudi Arabia, operating at full capacity for the entire period, the completion of Umm Al Nar in Abu Dhabi, and additional capacity coming online at Ras Laffan B in Qatar. Underlying profit growth in the region was strong, especially as profits for the corresponding period in 2006 benefited from a one-off development fee from the Hidd acquisition in Bahrain.

At Umm Al Nar, the final 458 MW of the new plant reached commercial operation in July 2007. The combined plant now has an overall capacity of 2,200 MW and 143 MIGD and is operating under the first year of its 20-year Power and Water Purchase Agreement (PWPA). At Ras Laffan B, in Qatar, the third and final phase of construction is progressing well, with completion of the final 125 MW and 45 MIGD expected in the first half of 2008. In Bahrain, construction of the 60 MIGD desalination extension at Hidd continues to make progress and this additional capacity is expected to be operational in the first quarter of 2008.

The Fujairah F2 IWPP, in Abu Dhabi, is expected to reach financial close by the end of 2007, and is scheduled to be fully operational by the end of 2010. Negotiations continue with Eskom and Botswana Power Corporation on the first phase of the Mmamabula project (up to 2,500 MW) in Botswana.

Australia

Profit from operations fell to £66 million (2006: £100 million). Australian performance continued to be impacted by adverse inter-regional pricing differentials that we reported at the half year, together with an unplanned outage at a 200 MW unit at Hazelwood during late September through to mid October. In addition, unrealised gains on some proprietary trading contracts, that were booked in the first half of the year, have reversed in the third quarter. However, the inter-regional pricing differential is the most significant factor and arises where we forward hedge our power outside of the state in which we have our generation. This policy has historically worked well during periods of low market liquidity in Victoria and South Australia, but inter-regional pricing differentials have widened significantly this year due to the Australian drought. This has resulted in contracts for the sale of power being settled by purchases in the spot market at times of high prices. This has been compounded by a lack of liquidity in the market preventing us from closing out these positions. There are no such inter-regional positions in 2008.

Forward prices remain strong for 2008, where we are around 75% forward contracted, we still expect the average achieved price for the year to be in the order of A$45 per MWh. Given current reserves of cooling water, we remain confident that Hazelwood and Loy Yang B can generate at full load throughout 2008 and into 2009, despite the ongoing drought in Australia.

Asia

Profit from operations in Asia was slightly ahead at £77 million compared to £75 million in 2006, even after the sale of Malakoff in 2007. High load factors and strong operational performances at Thai National Power, HUBCO, Paiton and Uch were offset by lower earnings at KAPCO, due to the expiry of its tax holiday at the end of June 2006.

We continue to actively pursue the 800 MW Paiton 3 expansion and the 1,320 MW West Java (renamed from Tanjung Jati A) coal fired greenfield opportunities in Indonesia. Tariff and PPA negotiations with the offtaker are continuing in parallel with discussions on the EPC contracts for both projects.

Interest

Net interest expense has increased by £31 million to £210 million for the period, primarily reflecting the Coleto Creek, Levanto and Maestrale acquisitions, and an increased interest expense at Tihama as the asset became fully operational in the fourth quarter of 2006. Interest cover was 2.7x for the nine months ended 30 September 2007 (2006: 2.7x).

Foreign exchange

The impact of the strengthening of sterling on the results of our overseas operations, compared to the same period in 2006, is a reduction in EPS of 0.7p. The majority of this impact relates to the translation of US dollar denominated operations.

Tax

The Group tax charge for the first nine months has reduced by £11 million to £74 million (2006: £85 million). This includes the impact of reducing UK deferred tax balances, following the lowering of the standard rate of UK corporation tax from 30% to 28% with effect from 1 April 2008. Minority interests in our UK assets also benefit from this change in tax rate. The effective tax rate, excluding this impact, is 30% (2006: 30%).

Exceptional items and specific IAS 39 mark to market movements

All exceptional items occurred in the first half of the year and produced a gain before tax of £259 million (2006: gain before tax of £19 million). This includes the following items:

Profit on the sale of Malakoff of £115 million
Profit on the partial disposal of certain UK subsidiaries to Mitsui of £153 million
Provision against the investment in BioX of £9 million

The specific IAS 39 mark to market movements reported in the period amount to a charge before tax of £305 million (2006: gain of £22 million), £222 million of which relates to significant increases in forward prices in Australia.

Tax on mark to market movements during the nine months was a credit of £90 million (2006: nil). No tax arose on the exceptional items in the period (2006: charge of £4 million).

Cash Flow

A summary of the Group cash flow is set out below:

	Nine months ended 30 September 2007 £m	Nine months ended 30 September 2006 £m	Year ended 31 December 2006 £m

Profit for the period	394	337	477
Depreciation, amortisation and other movements ⁽ⁱ⁾	310	222	322
Dividends from joint ventures and associates	67	58	113
Capital expenditure – maintenance	(57)	(86)	(128)
Movement in working capital	(13)	38	(15)
Tax and net interest paid	(286)	(230)	(313)

Free cash flow	415	339	456
Receipt from TXU administrators – exceptional	-	14	14
Receipt of compensation for breach of contract - exceptional	-	5	5
Debt financing costs capitalised on acquisition debt	(2)	(15)	(14)
Capital expenditure – growth	(124)	(95)	(142)
Returns (net of investments) from joint ventures, associates
and investments	1	18	24
Acquisitions	(807)	(688)	(842)
Disposals	418	1	1
Dividends paid	(118)	(67)	(67)
Proceeds from share issue	10	11	15
Funding from minority interests	28	1	3
Foreign exchange and other	(148)	150	213

Increase in net debt	(327)	(326)	(334)
Opening net debt	(3,494)	(2,979)	(2,979)
Net debt on acquisition of subsidiaries	(690)	11	(181)

Closing net debt	(4,511)	(3,294)	(3,494)

⁽ⁱ⁾ Depreciation, amortisation and other movements are set out in note 4 to this statement. They include income statement charges for interest, tax, depreciation, specific IAS 39 mark to market movements, the share of profit of joint ventures and associates, the exceptional profit on the disposal of 25% of UK subsidiaries and the exceptional profit on disposal of Malakoff. In the year ended 31 December 2006 they also included the exceptional profit on the TXU settlement and the exceptional profit on compensation for breach of contract.

Free cash flow for the first nine months of the year was £415 million, an increase of 22% compared to the previous year (2006: £339 million). This increase was driven by strong operational and financial performance across the Group, together with higher dividends from joint ventures and associates. This was partially offset by increased tax and interest payments, which were £56 million higher than 2006.

Disposals include the proceeds of £249 million from the sale of Malakoff and £168 million from the disposal of 25% of Deeside, Rugeley and Indian Queens to Mitsui. Acquisitions include the purchase of the Maestrale wind portfolio, the remaining 50% of the Simply Energy business, together with the purchase of 5% of First Hydro and Saltend and the economic interest of 9.2% of Paiton from Mitsui.

Summary balance sheet

A summarised, reclassified Group balance sheet is set out below:

	As at 30 September 2007 £m	As at 30 September 2006 £m	As at 31 December 2006 £m

Goodwill and intangibles	1,746	447	425
Property, plant and equipment	4,921	4,476	4,435
Investments	1,312	1,466	1,290
Long-term receivables and others	1,466	830	1,270

	9,445	7,219	7,420
Net current (liabilities)/assets (excluding net debt items)	(264)	(173)	72
Non-current liabilities (excluding net debt items)	(1,823)	(1,155)	(1,258)
Net debt	(4,511)	(3,294)	(3,494)

Net assets	2,847	2,597	2,740

Gearing	158%	127%	128%
Debt capitalisation	61%	56%	56%
Net debt – JVs / Associates	(1,209)	(1,556)	(1,524)

Goodwill, intangibles and property, plant and equipment have increased by approximately £1.8 billion during 2007 due to acquisitions in the period, primarily the Maestrale wind portfolio. The increase in long-term receivables is principally attributable to increases in finance lease receivables relating to new wind farm acquisitions and transfers from assets under construction.

Net current liabilities (excluding net debt) have increased due to mark to market movements recorded in the period and the disposal of Malakoff (which was shown as an asset held for sale at 31 December 2006) which have been partially offset by increases in working capital attributable to new acquisitions. Non current liabilities (excluding net debt items) increased by £565 million principally reflecting deferred tax liabilities recognised on acquisitions.

During the quarter International Power extended the maturity of its corporate revolver to 2010, alongside increasing the size of the facility to US$850 million, from US$640 million.

Dividend

The interim dividend of 2.77 pence per ordinary share, announced at the interim results, was paid to shareholders on 30 October 2007. The interim dividend was calculated as a fixed percentage (35%) of the previous year’s full year dividend. International Power’s dividend policy, of progressively moving towards a dividend pay-out ratio of 40%, remains unchanged.

Outlook

Financial performance in the nine months has been impacted by mild weather in North America and by the effects of drought in Australia. Despite the continuing impact of inter-regional pricing differentials in Australia, we remain confident that overall 2007 will be a year of further growth.

Achieved Spark and Dark Spreads for the nine months ended 30 September 2007

		Nine months ended 30 September
		2007	2006

North America
New England
	Spark spread ($/MWh)	$16*	$11
	Load factor	60%	65%
Texas (Midlothian)
	Spark spread ($/MWh)	$13	$13
	Load factor	65%	65%
Texas (Hays)
	Spark spread ($/MWh)	$11	$14
	Load factor	50%	65%
Texas (Coleto Creek)
	Dark spread ($/MWh) **	$28	n/a
	Load factor	75%	n/a


United Kingdom
Rugeley
	Dark spread (£/MWh) ***	£32	£19
	Load factor	60%	55%
Deeside
	Spark spread (£/MWh) ***	£28	£18
	Load factor	55%	35%


Australia
Hazelwood
	Achieved power price (A$/MWh)	A$31	A$34
	Load factor	80%	80%

Notes:
* Includes impact of Forward Capacity Market
** Excludes SO₂ costs
*** Excludes CO₂ costs

For further information please contact:

Investor Contact:	Media Contact:
James Flanagan	Beth Akers
+44 (0)20 7320 8869	+44 (0)20 7320 8622

About International Power
International Power plc is a leading independent electricity generating company with 30,807 MW gross (18,935 MW net) in operation and 224 MW gross (149 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, France, Germany, Italy, the Netherlands, Portugal, Spain, Turkey, Bahrain, Oman, Qatar, Saudi Arabia, the UAE, Indonesia, Pakistan, Puerto Rico and Thailand. International Power is listed on the London Stock Exchange with ticker symbol IPR. Company website www.ipplc.com.