Financial results for the year ended 31 December 2011
Full announcement including financials in PDF format.
(London – 8 February 2012) International Power today announces its preliminary results for the year ended 31 December 2011 and reports on key developments to date.
Dirk Beeuwsaert, Chairman of International Power, said: “I am pleased to report that International Power delivered a strong performance in the first year following the Combination with GDF SUEZ Energy International, with the integration largely complete and benefits being delivered ahead of target. Against a backdrop of economic weakness in many developed economies, these results demonstrate the strength of our international portfolio, underpinned by our attractive position in fast growing emerging markets.
“The Board has recommended a full year dividend of 11.0 euro cents per share, which represents a payout ratio of 40%. We remain well placed to create value from our existing portfolio and through multiple investment opportunities.”
Pro forma1 financial highlights
- Revenue €16,502 million (2010: €15,950 million) – up 3%
- EBITDA2 €4,339 million (2010: €4,013 million) – up 8%
- Adjusted current operating income2 €3,055 million (2010: €2,810 million) – up 9%
- Underlying earnings per share2 27.6 euro cents (2010: 24.9 euro cents), including purchase price allocation adjustments – up 11%
- Free cash flow3 of €2,691 million (2010: €2,586 million) up 4%. Up 7.5% before restructuring costs
- Synergies of €135 million delivered in 2011, 50% ahead of original target
- Full year dividend of 11.0 euro cents proposed (2010: 10.91 pence) – payout ratio of 40%
Outlook
We are confident of delivering further growth in 2012, principally driven by full year contributions from new plants that became operational in late 2011 together with over 6.5GW gross (2.4GW net) of new capacity that is expected to come on line during 2012. However, the level of growth will be impacted by contracts rolling off in North America and fewer expected LNG diversions.
Medium term prospects remain strong. Our construction programme is progressing well and we expect a further 6.3GW gross (3.5GW net) of capacity to become operational by 2014. In addition, we see significant upside in all of our principal merchant markets as they recover.
Following high levels of hydro generation in Brazil, implied free market prices are now lower than in 2011. Without a recovery in these prices, the impact on our Jirau hydro project will make it challenging to deliver the 2013 EBITDA target of €1.0 billion from projects under construction announced in August 2010.
In addition to our construction programme, we currently have a substantial development pipeline of 14.4GW gross (6.5GW net), of which 87% (net) is in high growth emerging markets. With our high quality asset portfolio underpinned by our strong financial position, we are well placed to deliver sustained growth in shareholder value.
| Note 1 |
The pro forma results presented within this preliminary announcement assume that the Combination of GDF SUEZ Energy International and International Power, which completed on 3 February 2011, occurred on 1 January 2010. The financial information is presented including the impacts of purchase price allocation adjustments in both the current and prior periods and excludes the impacts of exceptional items and specific IAS 39 mark to market movements, unless otherwise stated. A reconciliation of the pro forma consolidated income statement, including exceptional items and specific IAS 39 mark to market movements, to the pro forma consolidated income statement, excluding exceptional items and specific IAS 39 mark to market movements, is included in Appendix 1 to the preliminary announcement on pages 58 to 65. |
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| Note 2 |
EBITDA and adjusted current operating income are defined in note 3 to the financial statements as set out and reconciled on pages 33 and 34. The explanation and definition of underlying earnings per share (which excludes exceptional items and specific IAS 39 mark to market movements) are set out in notes 4 and 8 of the financial statements on pages 37, 38 and 43. The reconciliation of pro forma earnings per share to pro forma underlying earnings per share excluding exceptional items and specific IAS 39 mark to market movements is set out in Appendix 1 on pages 60 and 61. A reconciliation of reported earnings per share (including exceptional items and specific IAS 39 mark to market movements) to earnings per share (excluding exceptional items and specific IAS 39 mark to market movements) is set out in note 8 to the financial statements on page 43. |
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| Note 3 |
Pro forma free cash flow is set out on page 62. A reconciliation of pro forma cash flow from operating activities to pro forma free cash flow is set out in Appendix 1 on page 62. A reconciliation of reported cash flow from operating activities to free cash flow is set out in note 11 to the financial statements on page 48. |
Group overview - Reported
Reported4 financial highlights
- Revenue €16,167 million (2010: €11,382 million)
- EBITDA €4,225 million (2010: €2,534 million)
- Adjusted current operating income €2,978 million (2010: €1,742 million) – up 71%
- EPS of 27.9 euro cents (2010: 30.4 euro cents) excluding exceptional items and specific IAS 39 mark to market movements – down 8%
- EPS of 28.1 euro cents (2010: 29.0 euro cents) including exceptional items and specific IAS 39 mark to market movements – down 3%
- Free cash flow of €2,698 million (2010: €1,554 million)
| Note 4 |
The reported results have been prepared in accordance with International Financial Reporting Standards which reflect the reverse acquisition of International Power by GDF SUEZ Energy International on 3 February 2011. Accordingly, the reported results represent the continuation of the financial statements of GDF SUEZ Energy International, and reflect the acquisition of International Power by applying the ‘acquisition method’ of accounting to the International Power identifiable assets acquired and liabilities assumed. The reported results for the period under review comprise those of the former GDF SUEZ Energy International business for the year ended 31 December 2011, and the results of the former International Power business, from the date of the Combination for the eleven months ended 31 December 2011, which reflect the impacts of the purchase price allocation adjustments. The comparative financial information presented relates only to the former GDF SUEZ Energy International business. |
Reported adjusted current operating income and underlying EPS
Adjusted current operating income and underlying earnings per share for the year ended 31 December 2011 are as follows:
Reported
adjusted
current
operating
income and
EPS |
Year ended
31 December |
|
|
|
|
| |
2011
€m |
2010
€m |
Total
Change5 |
Fx
Change5 |
Scope
Change5 |
Organic
Change5 |
Latin America
North America
UK-Europe
META
Asia
Australia |
1,333
575
312
372
307
191 |
1,127
308
29
190
167
- |
18%
87%
976%
96%
84%
-% |
(1)%
(4)%
-%
(4)%
(1)%
-% |
1%
30%
976%
82%
69%
-% |
18%
61%
-%
18%
16%
-% |
| Corporate costs |
(112) |
(79) |
(42)% |
-% |
(81)% |
39% |
Adjusted
current
operating
income |
2,978 |
1,742 |
71% |
(2)% |
45% |
28% |
|
|
| |
€ cents |
€ cents |
|
|
|
|
Underlying
EPS |
27.9 |
30.4 |
(8)% |
|
|
|
|
|
The principal reason for the significant increase in reported revenue, EBITDA, adjusted current operating income and net income between periods is the scope change, which principally relates to the contribution of the former International Power business from the date of the Combination6 to 31 December 2011. The reported results in 2011 also benefited from strong organic growth in Latin America and higher profitability in the LNG business in North America.
Reported earnings per share in 2010 is based solely on the former GDF SUEZ Energy International business as set out in the Circular7 to shareholders. Reported earnings per share fell from 30.4 euro cents to 27.9 euro cents principally reflecting the significant cash contributions made by the wider GDF SUEZ group to the business in accordance with the Merger Deed7, the relative profitability of the two legacy businesses and the premium paid.
| Note 5 |
The total change between periods is divided into: ‘FX change’ which reflects the impact of different foreign exchange rates between periods; ‘scope change’ which reflects impact of acquired and divested businesses; and ‘organic change’ which reflects the movement in underlying performance. |
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| Note 6 |
The Combination of International Power and GDF SUEZ Energy International, which completed on 3 February 2011. |
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| Note 7 |
The ‘Circular’ was posted to all shareholders on 19 November 2010 and contained a notice convening a general meeting of International Power shareholders, which was held on 16 December 2010 and at which approval of the Combination was received. The ‘Merger Deed’ was entered into by International Power plc, GDF SUEZ S.A. and Electrabel S.A. and set out the terms of the Combination. |
Group overview - pro forma
The financial information within the remainder of this review of the business is presented on a pro forma basis, as defined above, unless otherwise stated. Throughout this text net capacity represents International Power’s ownership percentage and gross capacity represents 100% of plant capacity irrespective of the level of International Power’s ownership.
Pro forma adjusted current operating income and underlying EPS
Pro forma adjusted current operating income and underlying earnings per share for the year ended 31 December 2011 are as follows:
Pro forma
adjusted
current
operating
income
and EPS |
Year ended
31 December |
|
|
|
|
| |
2011
€m |
2010
€m |
Total
Change5 |
Fx
Change5 |
Scope
Change5 |
Organic
Change5 |
Latin America
North America
UK-Europe
META
Asia
Australia |
1,333
575
341
384
324
214 |
1,127
396
509
372
305
235 |
18%
45%
(33)%
3%
6%
(9)% |
(1)%
(4)%
(1)%
(4)%
(2)%
7% |
1%
-%
-%
-%
2%
(3)% |
18%
49%
(32)%
7%
6%
(13)% |
| Corporate costs |
(116) |
(134) |
13% |
1% |
-% |
12% |
Adjusted
current
operating
income |
3,055 |
2,810 |
9% |
(1)% |
-% |
10% |
|
|
| |
€ cents |
€ cents |
|
|
|
|
| Underlying EPS |
27.6 |
24.9 |
11% |
(2)% |
-% |
13% |
|
|
Total adjusted current operating income for 2011 increased by 9% from last year, driven by a strong increase in North America, which benefited from higher performance in the LNG business, and in Latin America, which experienced strong organic growth in Brazil, together with first-time contributions from new projects coming on line in Brazil and Chile. As expected, achieved spreads in the UK were lower. In Asia and META (Middle East, Turkey & Africa), our portfolio of largely long-term contracted assets performed well, with Asia benefiting from improved performance at Senoko in Singapore and the first full-year contribution of our CFB3 power plant at Glow in Thailand. In Australia operating income decreased, primarily reflecting a low pricing environment driven by a mild summer. Corporate costs, at €116 million, were 13% lower than last year reflecting corporate synergies achieved to date. Overall, the portfolio has delivered a strong operational and financial performance with 11% growth in EPS.
Growth
Update on Jirau
International Power owns 50.1% of the project company Energia Sustentavel do Brasil (ESBR) that is building a 3,750MW gross (50 units of 75MW each) hydro project on the Madeira river in Brazil. International Power’s net ownership in the project represents 1,879MW of capacity.
73% of the project’s total assured energy (of 2,185MW) has been sold under two 30-year regulated contracts, indexed to inflation. The balance will be sold in the free market, principally to industrial customers (“free market”). The proportion of the free market capacity is higher in the early years and reduces to 27% by 2016.
The phased commissioning of units at this major project is expected to start in H2 2012, with a fast ramp-up to full assured energy in the second half of 2013 (for the first 46 units). The river deviation, a major milestone in the construction schedule, was successfully completed in September 2011.
Good progress has been made on negotiations with the principal construction contractor. The expected total capex to completion for this project (at the 100% level) is estimated at BRL15.1 billion (compared to the December 2010 estimate of BRL12.5 billion restated for inflation indexation). This latest estimate reflects the cost of capacity expansion of circa BRL1.0 billion for additional units and BRL1.6 billion towards change of scope and schedule.
For 2013, the contribution from Jirau will depend on the price achieved for the currently uncontracted free market capacity, which we estimate at 1,162MW (average). Following high levels of hydro generation in Brazil, implied free market prices are now some BRL30/MWh lower than in 2011.
We are investigating a number of options to create additional value, including a potential increase of some 90MW in the level of assured energy, long-term tax incentives in the region and further long-term options beyond the initial concession.
The project is expected to be transferred to Tractebel Energia at the end of 2012 / early 2013.
Update on other construction projects
Several new projects totalling 5,371MW gross (1,693MW net) commenced operation in 2011 (the following MW numbers are presented on a net ownership basis):
- in Latin America,
- four units at the Estreito hydro plant in Brazil (150MW)
- the Monte Redondo wind farm extension in Chile (10MW)
- the CT Andina (80MW) and CT Hornitos (48MW) coal-fired plants in Chile
- the repowering of Bahia las Minas in Panama (4MW incremental capacity)
- part of the Dos Mares hydro plant (31MW) in Panama
- in North America, the Astoria Energy II plant (173MW), and the Pointe-aux-Roches (45MW) wind farm in Canada
- in Europe, the Crimp wind farm in the UK (2MW), the T-Power CCGT plant in Belgium (140MW) and the ElecGas gas-fired plant in Portugal (210MW)
- in META, the Ras Laffan C gas-fired plant in Qatar (179MW) and the Shuweihat 2 gas-fired plant in the United Arab Emirates (302MW)
- in Asia, the HUBCO Narowal oil-fired plant in Pakistan (36MW) and the Glow Energy Phase V gas-fired plant in Thailand (236MW)
- in Australia, the Synergen gas/distillate plant (24MW incremental capacity)
New projects and further growth
As at 31 December 2011, we had 12,820MW gross (5,868MW net) under construction, of which 6,534MW gross (2,368MW net) is expected to come on line during 2012. We have a strong pipeline of projects under development representing 14.4GW gross (6.5GW net), with 87% (net) of these development projects located in emerging markets. We expect capital expenditure of some €3 billion to €4 billion per annum over the medium term, including annual maintenance capital expenditure of approximately €550 million. For 2012, the committed growth capex is some €2.5 billion.
Synergies
In 2011, good progress was made on achieving both operational and financial synergies, with the delivery of €135 million of synergy savings against a forecast of €103 million (original target of €90 million). The outperformance in 2011 is the result of an accelerated synergy implementation schedule and identification of additional savings. As a result, the 2016 target is now €225 million, up from €215 million previously, and the 2012 target is now €175 million, up from €167 million. The cost of implementing these synergies remains €155 million.
Purchase Price Adjustments – update
As a result of the Combination, the assets acquired and liabilities assumed of the pre-Combination International Power have been fair valued. Fair value adjustments have been made principally to the carrying amounts of property, plant and equipment, intangible assets and debt. Goodwill on consolidation amounts to approximately €2.8 billion.
In comparison with pre-Combination projected earnings per share for the year ended 31 December 2011, the actual post-Combination earnings per share is adversely affected by 0.2 euro cents, which compares to the provisional estimate of an adverse 0.7 euro cents made at the time of our Interim Statement on 9 August 2011. Earnings in the following years benefit from the purchase price adjustments. The impact on 2011 and future periods is set out on page 18 of this statement.
Regional Review
Latin America
Revenue in Latin America increased 15% to €3,694 million compared to €3,207 million in 2010 (up 17% at constant currency). EBITDA increased 18% to €1,736 million, compared to €1,475 million in 2010 (up 19% at constant currency).
Adjusted current operating income increased 18% to €1,333 million compared to €1,127 million in 2010 (up 19% at constant currency). The region benefited from strong organic growth in Brazil, Chile and Central America, including significant contributions from a number of growth projects in the region, notably Estreito in Brazil.
In Brazil, higher power sales prices were achieved, driven by long-term contract price escalation in line with inflation, and the renewal of contracts at higher prices. We expect this trend to continue to benefit contracted revenues in 2012. In addition, input costs fell due to portfolio optimisation and lower purchases of power from external sources as our new capacity came on line. Exports to Argentina and Uruguay during 2011 delivered higher sales volumes, although this may not be repeated at the same level in the future. The fourth unit of the Estreito hydro power plant began commercial operation in December with the plant reaching 50% of its total capacity and 75% of its assured energy.
In Panama, the 108MW gross (55MW net) Bahia Las Minas coal conversion project restarted commercial operation in March. Liquidated damages of US$36 million relating to the delays are included in the results for the period. The other units (CCGT) from Bahia Las Minas also benefited from higher dispatch, capturing additional margin.
In Chile, performance benefited from the first full year of operations at the GNLM LNG terminal, and higher average power sales prices at E-CL, as a result of favourable indexation. The results for the period include liquidated damages of US$63 million in compensation for lost sales relating to delays at the CT Andina and CT Hornitos coal plants, in total 319MW gross (168MW net).
North America
Revenue in North America remained broadly flat, €5,246 million compared to €5,258 million in 2010 (up 4% at constant currency). EBITDA increased 15% to €1,029 million, compared to €891 million in the previous year (up 19% at constant currency).
Adjusted current operating income in North America increased by 45% to €575 million compared to €396 million in 2010 (up 49% at constant currency). This rise mainly reflects a strong performance in the LNG business together with improved wholesale prices, particularly in ERCOT (Texas), and a strong performance in retail.
The gas business benefited from higher LNG volumes and sales to premium global LNG markets with higher spreads. A total of 26 cargoes were diverted in 2011 to locations in Asia and Europe, compared to seven in 2010. However the non-renewal of a short-term LNG purchase contract will reduce the number of contracted cargoes by nine and will impact the number of potential diversions in 2012. The gas business in Mexico continues to perform well, with most of our Local Gas Distribution Companies (LDCs) benefiting from increased tariffs.
The retail business delivered higher volumes at increased margins, through effective commodity risk management. ‘Think Energy’ was launched in December, offering electricity services to small commercial and industrial customers, which significantly expands our potential customer base.
ERCOT results were driven by exceptionally hot summer weather. The market power price cap of US$3,000/MWh was reached on a number of occasions and our merchant assets performed well during these peak times, capturing high prices. Overall the outlook for ERCOT remains positive, with the system operator in December 2011 revising its forecast reserve margin for 2012 down to 12% from 17%.
In New England, performance was affected by continued weak market conditions and low capacity prices. At First Light, profitability was affected by the roll-off of higher priced hedges that were entered into prior to 2010, although this was offset by the recovery of insurance proceeds of US$30 million relating to a 2010 incident.
In New York performance was affected by the roll-off in H2 2011 of the long-term power purchase agreement at Sayreville, 287MW gross (144MW net), and a partial (80MW) roll-off at Bellingham Cogeneration, 304MW gross (152MW net). The roll-off of these contracts in New York and at First Light will impact our results by approximately €75 million at the adjusted current operating income level in 2012.
In PJM performance improved as a result of extreme weather conditions, particularly in June, when prices spiked to US$900/MWh. The last capacity auction for the year to May 2015 in the PJM market cleared at a price of US$126/MW-day, compared to US$28/MW-day for the prior year.
During the year we divested our 17.6% interest in Noverco, a Canadian gas pipeline. This week we completed the sale of Choctaw, a merchant gas-fired plant (746MW gross and net) in Mississippi, and are in the process of completing the sale of Hot Spring, also a merchant gas-fired plant (746MW gross and net) located in Arkansas. The proceeds from these sales will total approximately US$900 million and these disposals are in line with our strategy to focus on key markets in North America.
For 2012, we have forward contracted approximately 80%, and 75% of our expected output in ERCOT and New England respectively.
UK-Europe
Revenue in UK-Europe decreased 4% to €3,618 million compared to €3,752 million last year (down 3% at constant currency). EBITDA decreased 14% to €649 million compared to €751 million for 2010 (down 13% at constant currency).
Adjusted current operating income decreased 33% to €341 million from €509 million in the previous year (down 32% at constant currency).
In the UK, performance at Saltend and Rugeley was lower following the roll-off of higher priced contracts signed prior to 2010. Conditions in the UK market remain challenging and as previously reported, we have temporarily reduced the declared capacity of the Teesside CCGT from 1,875MW to 45MW. The plant can be brought back on line to capture upside when the market recovers.
The UK retail business supplies the commercial and industrial market and has seen an increase of 9% in the volume of gas sold and a 6% rise in electricity volume coupled with higher sales prices. The increase in revenue has largely been offset by increased commodity costs.
In Continental Europe, performance was above 2010 mainly due to the commissioning of the ElecGas 840MW gross (420MW net) CCGT in February 2011. In Italy, wind volumes were below average, but overall contribution was supported by higher pricing following phased transition to the revised renewables tariff in line with our re-powering programme. Performance at ISAB was marginally lower due to an outage experienced in Q4 and insurance recoveries received in 2010.
In May 2011, we agreed the sale of our interest in T-Power in Belgium and completion is expected in H1 2012. This sale will satisfy the undertakings made to the European Commission as part of gaining clearance for International Power’s Combination with GDF SUEZ Energy International.
On 12 July 2011 the UK Government published a White Paper outlining its proposed Electricity Market Reform. This Paper and its associated Technical Update, published on 15 December 2011, brought greater clarity to a number of widely anticipated initiatives to promote low carbon generation. We are encouraged by the recognition of the need for a capacity payment mechanism, and the importance placed on a liquid wholesale trading market. We await further details regarding the implementation of these proposals and will continue to engage with the UK Government on these key initiatives.
The UK Government also published its Consultation on proposals for the levels of banded support under the Renewables Obligation in October 2011. This is important for our onshore wind portfolio and our potential biomass and tidal stream projects.
We have contracted 70% of the expected output at Rugeley, 90% at Saltend and 10% at Deeside for 2012.
Middle East, Turkey & Africa
Revenue in the Middle East, Turkey & Africa (META) increased 12% to €1,190 million compared to €1,064 million in 2010 (up 17% at constant currency). EBITDA decreased 5% to €309 million compared to €324 million last year (down 1% at a constant currency). EBITDA has been reduced by lower development fees in 2011, compared to 2010.
Adjusted current operating income increased 3% to €384 million, up from €372 million in 2010 (up 7% at constant currency). Our assets in the region delivered a good operational performance, and the region benefited from first-time contributions from new plants and an improved performance in Turkey, specifically at Izgaz. These improvements were partially offset by a reduction in development fees following the receipt of the Riyadh IPP, Barka 3 and Sohar 2 fees in 2010, while in 2011 we received only a final fee in respect of Shuweihat 2.
In Bahrain, we currently own 70% of Hidd, and are required by the regulatory authorities to reduce our generation capacity in this market, because we exceed market concentration limits following the Combination. The sale of 40% of Hidd is in the final stages of completion and is expected to close in Q2 2012. The accounting standards require ‘held for sale’ treatment to be applied to Hidd and accordingly no depreciation has been charged on this asset for the six months to 31 December 2011. The partial sale of Hidd will reduce the adjusted current operating income by some €70 million in 2012 and impact underlying earnings by some €25 million.
In September, an initial public offering was launched for 35% of the total share capital in SMN Power Holding SAOG (Barka 2 and Al Rusail in Oman), a business owned by International Power, Mubadala Development Company and Oman's National Trading Co. The IPO generated proceeds for us of US$30 million in the period.
Asia
Revenue in Asia increased 12% to €1,784 million compared to €1,598 million in the previous year (up 12% at constant currency). EBITDA increased 11% to €339 million compared to €305 million in 2010 (up 12% at constant currency).
Adjusted current operating income increased by 6% to €324 million from €305 million last year (up 8% at constant currency). Operational performance remains strong, with output from our assets in the region primarily contracted over the long-term.
Performance at Senoko in Singapore has been strong, benefiting from higher sales prices and favourable spot market prices, particularly in the second and third quarters of 2011.
In Indonesia, Paiton Energy performed well with high availability and dispatch throughout the year.
In Thailand, Glow Energy’s performance benefited from a first-time contribution from the 115MW gross (79MW net) CFB3 coal plant that was commissioned in November 2010 and the 340MW gross (236MW net) Phase V gas plant commissioned in August 2011. This was partially offset by a lower electricity tariff for industrial customers in Thailand during the first four months of the year, as well as restricted output from our Laos hydro plant (Houay Ho) following low rainfall in 2011.
Our operations in Thailand have suffered some impact following severe flooding in the country in late 2011. Our plants remained operational, but our customers and suppliers have been affected, and the restricted tariff indexation that was introduced in the first half of 2012 will reduce performance. At this stage we do not expect a material impact on overall results.
Australia
Revenue in Australia decreased 9% to €970 million compared to €1,071 million in 2010 (down 16% at constant currency). EBITDA remained flat, at €382 million compared to €386 million in 2010.
Adjusted current operating income was down 9% at €214 million compared to €235 million in the previous year (down 16% at constant currency). Relatively mild weather and increased levels of hydro generation in the system have led to subdued pricing. The disposal of the SEA Gas pipeline in November 2010 and an increase in the depreciation charge reflecting the refurbishment work carried out at Hazelwood in 2010, also impacted year on year comparison. These factors have been offset to some extent by the strength of the Australian dollar during 2011.
Hazelwood performed well in 2011, with high availability leading to record full year generation of over 12TWh, despite the outage experienced at Unit 5 in the first half of the year.
On 18 November 2011 the Climate Change Plan (Plan) was passed into law with a commencement date of 1 July 2012. International Power continues to expect that the proposed Plan will be cash flow positive and broadly earnings neutral over the initial five year period.
On 30 September 2011, the Australian Government released an invitation for Expression of Interest regarding a voluntary ‘contract for closure’ process which is targeting 2,000MW of higher emission power plant to close by 2020. We expressed our interest to include Hazelwood in the Government’s proposed ‘contract for closure’ tender process and in December Hazelwood was shortlisted for the negotiation stage. This could provide more certainty and reduce the overall impact of the Plan on the business. The Government intends the process to be completed by 30 June 2012.
Discussions have been held with lenders to both Hazelwood and Loy Yang B as debt facilities at both assets mature in 2012. We aim to restructure the existing facilities (A$1.75 billion in total) in the first half of 2012.
For 2012, we have forward hedged 90% of Hazelwood and Loy Yang B’s expected output, and 85% at Pelican Point.
Depreciation, amortisation and provisions
Depreciation, amortisation and provisions at €1,519 million for the year ended 31 December 2011 is €78 million higher than last year. This is mainly due to the commissioning of new projects, principally the LNG terminal, the CT Andina and the CT Hornitos coal-fired plants in Chile, the Estreito hydro plant in Brazil and also CFB3 in Thailand. The movement also reflects the reclassification of Hidd, Choctaw and Hot Spring as “assets held for sale” which had the effect of lowering the depreciation expense.
Interest
Net interest expense of €670 million is €98 million lower than last year, largely due to the repayment and refinancing of debt, particularly expensive project debt in the US, paid down shortly after the completion of the Combination. The underlying effective interest rates on gross debt and cash amount to 5.8% and 2.0% respectively.
Tax
The Group tax charge (including shares of associates’ tax) for the year ended 31 December 2011 is €630 million. The effective tax rate for the period is 26%, consistent with our rate for the six months to 30 June 2011. This is higher than the rate for 2010 which benefited from the resolution of some historic issues.
Dividend policy
The Board is proposing a final dividend of 6.6 euro cents per share, bringing the full-year dividend to 11.0 euro cents per ordinary share (2010: 10.91 pence per share), representing a payout ratio of 40% of pro forma underlying earnings per share. Payment of this final dividend to shareholders registered on the Company share register on 25 May 2012 is due to be made on 29 June 2012, following approval at the 2012 AGM, which will be held on 15 May 2012.
Other than for shareholders who elect to receive their dividends in euro, the final dividend will be paid in sterling (converted from euro at the rate achieved by the Company on Thursday 14 June). The applicable exchange rate will be announced by the Company shortly after conversion. The deadline for receipt by the Company's Registrars (Equiniti Limited) of currency elections in respect of the 2011 final dividend will be Friday 8 June 2012 at 1700 hours.
Exceptional items and specific IAS 39 mark to market movements – pro forma
Presented in the pro forma consolidated income statement on page 61, are mark to market on commodity contracts, other than trading instruments, amounting to a net gain of €289 million before tax (2010: net gain of €111 million), which primarily relates to the positive impact on GNLM hedges in Chile, forward power and retail supply hedges in North America and retail supply hedges, and the Saltend gas supply agreement in UK-Europe.
Net impairment charges amounting to €62 million before tax (2010: €496 million) mainly relate to our Red Hills coal plant (€86 million) in North America, following a reduction in its availability factor and its adverse heat rate performance, partly offset by the €29 million impairment reversal on Choctaw and Hot Spring.
During 2011, the Group recognised restructuring costs of €97 million, primarily relating to the integration of International Power with GDF SUEZ Energy International and the termination of the Syracuse contract in North America (€26 million).
Changes in scope of consolidation amount to a net gain of €63 million before tax (2010: €305 million). This net gain mainly includes the profit on disposal of the investment in Noverco and a revaluation gain on GNLM (Chile).
Exceptional items and specific IAS 39 mark to market movements – reported
Exceptional items and specific IAS 39 mark to market movements on the reported basis are predominantly the same as described on the pro forma basis with the principal difference being that the fair value gains relating to the Saltend gas supply agreement total €15 million under the reported basis, compared to €138 million under the pro forma basis.
Pro forma cash flow
A reconciliation of pro forma EBITDA to pro forma cash flow from operating activities, and to pro forma free cash flow is as follows:
| Pro forma cash flow |
Year ended 31 December |
| |
2011
€m |
2010
€m |
| EBITDA |
4,339 |
4,013 |
| Change in working capital requirements |
(151) |
108 |
| Payments relating to long term employee benefits |
(49) |
(37) |
| Restructuring costs |
(91) |
(2) |
| Tax paid |
(539) |
(482) |
| Dividends received from associates |
131 |
133 |
| Other items |
(2) |
7 |
| Cash flow from operating activities |
3,638 |
3,740 |
| Net interest paid on net debt |
(531) |
(722) |
| Maintenance capex |
(444) |
(479) |
| Other financial items – cash impact |
28 |
47 |
| Free cash flow |
2,691 |
2,586 |
EBITDA is up €326 million year-on-year mainly driven by the strong operational performance of Latin America and North America, partly offset by depressed spreads in UK-Europe.
Working capital was an outflow of €151 million this year, compared to an inflow of €108 million last year. The second half of 2011 showed an improvement (inflow of €184 million compared to the first half outflow of €335 million). This full year outflow of €151 million principally relates to Australia and UK-Europe. Australia had an outflow resulting primarily from timing differences on contracts with the Sydney Futures Exchange. UK-Europe had an outflow mainly driven by increased coal stocks at Rugeley.
Restructuring costs at €91 million principally represent the cost of implementing the Combination.
Tax paid is €57 million higher than last year. The majority of the tax is paid in Latin America, primarily by Tractebel Energia.
Dividends received from associates were in line with last year.
Maintenance capex is down 7% year-on-year and below the average annual run rate. Interest paid is €191 million lower than last year mainly due to strong cash flow and the refinancing of selected debt facilities.
Reported cash flow
Reported cash flow from operating activities is €1,471 million up year-on-year due to the inclusion of the cash generated by assets acquired as part of the Combination. Similarly, interest paid on net debt and maintenance capex has increased by €158 million and €176 million respectively. Free cash flow on a reported basis of €2,698 million is up €1,144 million year-on-year.
Summary statement of financial position
The Group’s net assets are analysed as follows:
| Summary statement of financial position |
|
As at
31
December
2011 |
|
As at
31
December
2010
(pro forma) |
|
As at
31
December
2010
(reported) |
| |
|
€m |
|
Re-presented8
€m |
|
Re-presented8
€m |
| |
|
|
|
|
|
|
| Goodwill and intangible assets |
|
5,456 |
|
5,510 |
|
2,122 |
| Property, plant and equipment |
|
27,687 |
|
27,907 |
|
16,675 |
| Investments |
|
1,403 |
|
1,660 |
|
373 |
| Other long-term assets (excluding net debt) |
|
2,776 |
|
3,014 |
|
1,439 |
| Net current assets (excluding net debt) |
|
642 |
|
33 |
|
801 |
| Non-current liabilities excluding net debt items |
|
(4,590) |
|
(4,451) |
|
(2,317) |
| Net debt excluding the impact of derivative instruments, cash collateral and measurement at amortised cost |
|
(11,909) |
|
(12,565) |
|
(6,074) |
| Net assets |
|
21,465 |
|
21,108 |
|
13,019 |
| Gearing |
|
55% |
|
60% |
|
47% |
| Debt capitalisation |
|
36% |
|
37% |
|
32% |
| |
|
|
|
|
|
|
|
Net debt – associates |
|
€m
4,358 |
|
€m
4,004 |
|
€m
2,306 |
| Note 8 |
The net debt at 31 December 2010 has been re-presented to reflect a revised definition which includes financial assets related to net debt, as explained in note 10 of the consolidated financial statements (page 45). |
The decrease in property, plant and equipment primarily arises on classification of Choctaw and Hot Spring in North America and Hidd in META as held for sale, offset by capex in excess of depreciation in the period.
Investments have decreased from €1,660 million to €1,403 million, primarily reflecting the disposal of the equity interest in Noverco.
Net debt has fallen from €12,565 million to €11,909 million following strong cash generation by the business.
The Group’s assets and liabilities are predominately larger in the pro forma statement of financial position as at 31 December 2010, in comparison with the reported statement of financial position as at 31 December 2010, due to the inclusion of the International Power assets acquired and liabilities assumed within the pro forma statement, even though the Combination was not effected until 3 February 2011.
Hedging policy
International Power hedges its operations in foreign operations by funding borrowings in the same currency as the underlying investment. In addition the Group may utilise foreign exchange derivatives to hedge the net investments in foreign operations, subject to practical and economic constraints. Instruments which could be used for hedging purposes include forwards (foreign currency exchange contracts), cross-currency swaps and currency options. To the extent that hedged amounts through borrowings or derivatives do not match foreign currency investments, this exposes our net assets to fluctuations in value. Similarly our Group earnings are and will remain exposed to translation exposures on earnings from foreign operations.
Purchase Price Allocation Adjustments
As a result of the Combination, the assets acquired and liabilities assumed of the pre-Combination International Power have been fair valued. Fair value adjustments have been made principally to the carrying amounts of property, plant and equipment, intangible assets and debt. Goodwill on consolidation amounts to approximately €2.8 billion.
For amortisation and depreciation charges there are offsetting impacts of step-up adjustments to intangible assets and property, plant and equipment, and the assessments of their residual values and asset lives.
Conversely, the post-Combination earnings are improved by the fair value step-up adjustments to debt through subsequently reduced interest expense.
Derivatives on the balance sheet at the date of the Combination principally comprise in-the-money derivative commodity contracts and out-of-the money interest rate swaps. The favourable derivative commodity contracts have a negative impact on post-Combination underlying earnings as they unwind, because the commodity prices are effectively reset to market prices at the date of the Combination. This has a more significant impact in 2011 than in future periods. Out-of-the-money interest rate swaps will reduce post-Combination underlying interest expense and improve underlying earnings as they unwind. This is because forward curves for interest rates were generally lower at the date of the Combination than at the date of inception for these instruments. The underlying earnings reflect the ‘resetting’ of the interest rates under these agreements to market rates at the date of the Combination.
In the pro forma income statement results presented, the fair value adjustment impacts are reflected in both periods, resulting in minimal impact between periods.
PPA impact on earnings
The following table shows the impact on earnings of the purchase price allocation adjustments.
| PPA impact on 2011 and future periods |
2011
€m |
2012
€m |
2013
€m |
2014
€m |
2015
€m |
| Latin America |
- |
- |
- |
- |
- |
| North America |
(58) |
(40) |
(21) |
(12) |
2 |
| UK-Europe |
(61) |
24 |
11 |
5 |
10 |
| META |
22 |
25 |
20 |
12 |
7 |
| Asia |
2 |
10 |
12 |
9 |
8 |
| Australia |
(41) |
40 |
15 |
2 |
(14) |
| Corporate |
- |
- |
- |
- |
- |
| Adjusted current operating income |
(136) |
59 |
37 |
16 |
13 |
| Interest |
93 |
92 |
72 |
50 |
25 |
| Tax |
22 |
(28) |
(20) |
(14) |
(10) |
| Profit for the full year |
(21) |
123 |
89 |
52 |
28 |
| Non controlling interests |
12 |
(4) |
2 |
5 |
8 |
| Net income group share |
(9) |
119 |
91 |
57 |
36 |
| Basic EPS |
(0.2) |
2.3 |
1.8 |
1.1 |
0.7 |
About International Power
International Power plc is a leading independent electricity generating company with 75,579MW gross (43,288MW net) in operation and a significant programme of 12,820MW gross (5,868MW net) projects under construction as at 31 December 2011. International Power is present in 30 countries across six regions worldwide. Together with power generation, the Group is also active in closely linked businesses including downstream LNG, gas distribution, desalination and retail. International Power is listed on the London Stock Exchange with ticker symbol IPR. GDF SUEZ holds a 70% interest in International Power plc. Company website: www.iprplc-gdfsuez.com