International Power is a world leading power generator with a strong competitive position. We are focused on operating efficiently and responsibly to maximise the value from our current portfolio and to deliver growth in shareholder value.
Business model
Generating value for the long-term is central to our business model. To achieve this we use a portfolio management approach, which involves maintaining a balanced portfolio in terms of geographical spread, fuel, technology and contract type. This provides access to multiple opportunities, whilst mitigating the risks through diversification.
In addition to operations in power generation, International Power seeks to create industrial synergies through investing in closely linked businesses such as downstream LNG, gas distribution, desalination and retail.
The electricity industry is critical for any economy and governments decide carefully whether to liberalise this sector or maintain a more regulated framework. Trading and commercial skills required for operating in liberalised (merchant) or non-liberalised (contracted) markets are very different and we have deep experience in both. Our presence in both types of market provides the Group with a stable platform of long-term contracted earnings and cash flow, overlaid by merchant generation which offers potential for superior returns when market conditions are favourable.
We optimise the operation of our power plants through several means, including managing all of our sites to high standards of safety and operating performance, closely co-ordinating plant operations with trading to maximise the value of our output, standardising management reporting for all investments and investing in improved plant efficiency.
A key objective of the portfolio approach is to maximise value through knowledge sharing across the business. As our energy operations are primarily local activities, local knowledge is essential. However, these operations can benefit immensely from being part of a worldwide organisation. A focus for the business is to continue to capture the value offered by this ‘local-global’ combination.
In summary, our business model is based on maintaining a diversified portfolio and maximising the value inherent within that portfolio to ensure we are well placed to pursue strategic objectives to grow the business and create further value for all our stakeholders.
Strategy for growth
Growth is core to International Power’s strategy and we are well placed to expand our international portfolio, with a wide geographic footprint, in-depth market knowledge and strong customer, partner and stakeholder relationships. The five key factors for delivering attractive growth are outlined below.
Building new generation capacity in fast growing emerging markets
We have significant generation capacity under construction in emerging markets. The successful delivery of these projects, which are all backed by long-term offtake contracts, is a key priority for International Power. The ongoing construction programme represents substantial invested capital and upon completion is expected to make a material contribution to performance. International Power has delivered numerous new projects in the last five years and, as a result, has very considerable experience in managing the construction of large projects across all key technologies. It is this deep experience and knowledge that underpins our management of the construction programme.
In addition to the current programme, our strong position in emerging markets means that we are well placed to capitalise on new growth opportunities. Demand for new generation capacity in emerging markets is driven by a combination of growing economies, young and growing populations and rising per capita electricity consumption as these economies develop. Together these offer us multiple growth opportunities through development of greenfield projects and, more organically, expansion of existing sites. We are also reviewing opportunities in new markets where we believe we can create value and these offer an additional source of growth. We have a robust investment appraisal process to ensure that only the most value-creating projects, with an appropriate risk/reward balance, are taken forward.
Capturing the benefit from recovery in merchant markets
Our asset portfolios in three key merchant markets of the UK, the US and Australia are well positioned to capture value from an improvement in market conditions. Although these developed markets are generally experiencing tougher economic conditions, there are factors that we believe will contribute to an uplift in the current pricing environment. The drivers of recovery are principally industrial demand, given that domestic demand has been resilient, and enforced plant retirements as a result of environmental regulation. Our efficient and flexible plants are well placed to benefit as the market recovers. For example, in the UK significant capacity is expected to be retired in the coming years combined with uncertainty on the timing of new nuclear plants coming on line. In the US, tightening environmental legislation may lead to retirements against a backdrop of limited new-build plans. Following the Combination, in the US we are benefiting from a downstream LNG business that is complementary to our generation business. We also have a greater presence in retail, which offers another route to market for our merchant generation capacity.
Delivery of synergies and efficiency improvements from the Combination
Synergies and efficiency improvements as a result of the Combination will continue to contribute to our performance. We are focused on maximising value from the enlarged portfolio and enhancing our competitive position. Our increased global presence offers the benefit of economies of scale in terms of fuel, new equipment procurement and maintenance expenditure, which will continue to drive operational synergies. Our business development teams have also been enhanced and benefit from a broader network of commercial and technical expertise, and access to a wider knowledge and talent pool.
Recycling of capital
We will continue to review opportunities to recycle capital through divestment of non-core assets and to redeploy capital into projects that offer superior returns.
Selective acquisitions
Another vehicle for growth is through selective M&A activity. Any potential acquisition would be assessed using strict and comprehensive investment criteria with the central objective that any new business acquired creates value and benefits the portfolio.