International Power Preliminary Results Announcement for the Full Year Ended 31 December 2002
(London – 7 March 2003) International Power announces its financial results for the full year ended 31 December 2002 and reports on key developments to date.
Sir Neville Simms, Chairman of International Power said: "I am pleased to report excellent financial results from a difficult year for our industry. Our earnings per share (pre exceptional items) increased 26% to 15.5 pence from 12.3 pence last year and once again profits were backed by strong free cash flow and underpinned by good operational performance across the whole of our geographically balanced asset portfolio."
"2003 will be challenging but we remain confident of delivering a result in line with our existing guidance. The Group remains firmly focused on creating value for shareholders through our operational and financial strength." Sir Neville added.
2002 Financial Highlights:
- Group turnover up 29% to £717 million from £557 million in 2001
- Profit before interest and tax, (excluding exceptional items) up 19% to £388 million from £326 million last year
- Earnings per share (pre-exceptional items) up 26% on last year at 15.5 p (post exceptional items 10.1p)
- Profits backed by free cashflow of £252 million, up 41% from £179 million in 2001
- Gearing: 46%; Debt Capitalisation: 31%
- Receipt of first dividend from KAPCO; continued dividend receipts from HUBCO
- UK asset impairment charges of £58m for Rugeley in addition to £45m for Deeside in H1 2002
2002 Operational Highlights:
- Global installed capacity increased 19% in 2002 to 10,890 MW
- Improved technical performance of GT24B turbines – average reliability 96%
- Quick transition to merchant operation at Rugeley following termination of tolling contract with TXU Europe
- Commenced construction of Shuweihat S1 (1,500 MW power and 100 MIGD water) plant - first of five gas turbines installed
- Construction of SEAGas pipeline in Australia well underway - over 200 km of the pipe now installed
- Full capacity at EOP plant in Czech Republic restored in 4 weeks following boiler house roof collapse
North America
In December 2002 we reached a significant milestone in North America when we achieved successful completion of our 3,890 MW US construction programme. Our overall capacity in North America now totals 4,415 MW (net). The 1,395 MW of new capacity added in 2002 constitutes the completion of the last three units at Hays in Texas (3 x 275 MW) and both units at Bellingham in New England (2 x 285 MW).
Gross turnover in North America increased to £315 million from £237 million in 2001. Profit before interest and tax increased to £99 million from £93 million, reflecting the addition of new capacity and continued compensation payments from Alstom.
Compensation income from Alstom in 2002 was £102 million (£80 million in 2001), which relates to income lost during the year as a result of delays in the construction programme and consequent unavailability of plant, in addition to payments to compensate for reduced output and efficiency.
Operationally, all assets performed well. In particular, our focus has been on the performance of the Alstom GT24B turbines. Although output and efficiencies remain below the contractual guarantee figures, the plants have demonstrated enhanced output, better heat rate and a significant improvement in their reliability and flexibility.
We made substantial progress during the year in developing our proposed 540 MW gas-fired Brookhaven project on Long Island in New York. In October last year, following a 15-month public review, the project received final approval from the New York State Siting Board. We are currently negotiating commercial contracts to enable the financing of the project in the expectation that we can commence construction of this power plant during 2003.
The merchant market in the US is now characterised by a sharp reduction in new plant development and construction. However, we do expect pricing to remain weak in our markets as the last of the current build programme becomes operational. The pace of recovery in 2004 and beyond will depend on the extent to which existing generators withdraw uneconomic plant, and we welcome the early evidence of this in Texas. In this regard the current high price of natural gas in the US further reduces the economic viability of much of the high heat rate incumbent plant.
Following a small number of refuted technical events of default on the US non-recourse financing, we are in discussions with our bank group. These claimed events of default principally relate to the availability of insurance cover for terrorism (which has now been obtained but was generally not available post September 11, 2001) and claimed failure to elect early completion of performance recovery periods. We believe we have constructive and acceptable plans to resolve all issues to the mutual benefit of both International Power and the banks. Until these issues are formally resolved and documented, the debt is reported as current secured non-recourse debt in our accounts. The maturity of the debt will be re-designated when these discussions reach successful completion.
In the US, our wholly owned subsidiary, American National Power (ANP), has an investment grade credit rating. This rating is currently under review by Moody’s who are expected to report in the near future.
Europe and Middle East
Gross turnover in Europe and Middle East decreased 16% to £440 million in 2002 from £521 million in 2001 reflecting the sale of Union Fenosa Generacion (UFG) in mid 2001, partially offset by the acquisition of Rugeley (UK) at the same time.
Profit before interest, tax and exceptional items decreased to £109 million from £141 million in 2001. This was principally due to a weak merchant market in the UK and the sale of our interest in UFG, but was exacerbated late in 2002 by the loss of the TXU tolling contract at Rugeley in the UK, and the boiler house roof collapse at EOP in the Czech Republic.
All assets in this region delivered solid underlying operational performance. Pego, Deeside and Marmara all consistently achieved high levels of availability.
In November 2002, we faced a major incident when the boiler house roof collapsed at one of EOP’s combined heat and power plants. No one was injured in this incident, but due to the extent of damage to the boilers, it did result in the loss of power and heat supply at a critical time in the year for our customers. Our engineers set themselves an aggressive restoration plan and delivered a remarkable performance by restoring full heating service within eleven days and returning the plant to full output just four weeks after the incident.
We reported in December 2002 that as a result of TXU Europe Energy Trading Ltd entering administration our tolling contract, which covered the full capacity of the Rugeley power station through to the end of 2005, was terminated. This triggered an entitlement to a termination payment and we continue to take all necessary steps to maximise recovery. While we feel that we are well positioned among creditors, we cannot yet accurately predict either the timing or the amount of such payments.
The fact that TXU Europe was placed into administration and thereby terminated our tolling contract, is in itself an event of default for our non-recourse credit facility of £160 million. We are in discussions with our banks to ensure a mutually acceptable solution.
In March 2002, as a consequence of uneconomic wholesale electricity prices in England and Wales, we mothballed half the capacity (250 MW) at Deeside. Due to this weak pricing and uncertainty on the timing of recovery, we also wrote down the value of Deeside by £45 million at the half year. For the same underlying reasons, and as a result of the termination of the tolling contract, we have written down the value of Rugeley by £58 million at the year-end.
In May 2002, construction commenced at the Shuweihat S1 power and water project (1,500 MW power, 100 Million Imperial Gallons per Day water) site in Abu Dhabi. The construction programme continues to make good progress with more than 6 million man hours completed without a single Lost Time Accident. The primary power and water civil work is nearing completion, and the first of the five gas turbines has now been installed. The plant remains on course to start operation in the second half of 2004. Once operational, the power and water output from the facility will be sold to the Abu Dhabi Water and Electricity Company under a 20-year off-take agreement.
In the second half of 2002, construction of our 285 MW Al Kamil power station in Oman was completed. The entire capacity at Al Kamil is contracted under a 15-year power purchase agreement with the Omani Ministry of Housing, Electricity and Water.
Our Italian development programme continues with dual objectives of securing fully permitted sites for the key projects, and securing long-term off-take agreements. Progress has been slower than originally planned, principally driven by uncertainty on the design and implementation of the new market structure. We do expect more clarity on this issue during 2003, and we remain focused on successfully delivering projects in Italy, which we continue to believe is an attractive long-term market for International Power.
In Portugal, Tejo Energia (of which we own 45% and are the largest shareholder) is developing an 800 MW CCGT plant, which would be located adjacent to the existing coal-fired Pego plant in central Portugal. Following the submission of the Environmental Impact Study last year, the public enquiry stage expired in January 2003 without any comments from the public. As with all new build projects, we are committed to secure long-term off-take agreements and discussions have already commenced with potential counter-parties.
Apart from the UK, our highly contracted position, with proven offtakers, provides good visibility of earnings and cash flow. In the UK, the continued severe wholesale pricing environment has created severe dislocation in the sector with almost one third of installed capacity either for sale or in the hands of the lenders. The pace of recovery will largely depend on what happens to this generation capacity, but recovery is unlikely to occur in 2003.
Australia
Our performance in Australia illustrates the merits of a geographically diverse asset portfolio. Our forward contracted position at Hazelwood and Pelican Point, together with greater profitability at the Synergen peaking plants, led to enhanced financial performance in the region.
Turnover in Australia increased by 16% to £226 million from £194 million in 2001. Profit before interest and tax was up 40% to £101 million from £72 million in 2001. Our average price achieved in Victoria was approximately A$41 per MW hour, up approximately 17% on 2001. As we own our fuel supply at Hazelwood (our largest plant in Australia), this translates directly into improved profitability.
During the year we made significant progress on the SEAGas pipeline project in which we have a 33% equity interest together with TXU Australia and Origin Energy. Construction of the pipeline from western Victoria to Adelaide is well underway with over 200 km of pipe now installed. This project not only helps to secure our future gas supplies at more competitive prices, but also represents an attractive investment in its own right. In May 2002, the project achieved financial close. The pipeline remains on track to start operation in the first quarter of 2004.
Rest of World
Gross turnover decreased to £148 million from £151 million in 2001. Profit before interest, tax and exceptional items increased to £108 million from £48 million last year. The principal driver behind this growth was the commencement of regular dividend receipts from Kot Addu Power Company (KAPCO) and Hub Power Company (HUBCO) in Pakistan. We continue to maintain close working relationships with WAPDA, our customer for both Companies.
At KAPCO, dividend payments totalling £42 million relating to the settlement of prior year receivables were treated as an exceptional item due to their non-recurring nature.
All assets in this region also delivered good operational performance. A highlight was our Pluak Daeng plant in Thailand that delivered robust financial and operational performance (98% availability) and also received ISO 14001 Environmental Management accreditation in 2002.
In Malaysia, the ongoing 650 MW plant expansion at Malakoff’s Lumut site was completed in 2002. The final 230 MW of capacity commenced combined cycle operation in November, approximately three months ahead of schedule. Malakoff’s total installed capacity is now 1,705 MW (gross), all of which is contracted under long-term power purchase agreements with Tenaga Nasional Berhad.
Cash Flow
A summary of the Group cash flow is set out below.
| £m |
|
Year Ended |
|
Year Ended |
|
|
|
31 December 2002 |
|
31 December 2001 |
|
| Operating profit (pre JV's & associates) - post exceptionals |
|
105 |
|
163 |
|
| Impairment |
|
103 |
|
- |
|
|
|
|
|
|
|
| Sub-Total |
|
208 |
|
163 |
|
| Depreciation and amortisation |
|
112 |
|
95 |
|
| Movement in working capital & provisions |
|
(44) |
|
16 |
|
| Dividends from JV's/associates/investments |
|
115 |
|
59 |
|
|
|
|
|
|
|
| Operating cash flow |
|
391 |
|
333 |
|
| Capital expenditure - maintenance |
|
(48) |
|
(48) |
|
| Interest and tax |
|
(108) |
|
(106) |
|
| Exceptional items |
|
|
|
|
|
| - Kapco dividend |
|
42 |
|
- |
|
| - Hazelwood refinancing |
|
(25) |
|
- |
|
|
|
|
|
|
|
| Free cash flow |
|
252 |
|
179 |
|
| Capital expenditure - growth |
|
(98) |
|
(358) |
|
| Acquisitions & disposals |
|
(144) |
|
318 |
|
| Foreign exchange translation |
|
75 |
|
35 |
|
|
|
|
|
|
|
| Movement in net debt |
|
85 |
|
174 |
|
| Opening net debt |
|
(897) |
|
(1,071) |
|
|
|
|
|
|
|
| Closing net debt |
|
(812) |
|
(897) |
|
|
|
|
|
|
|
Operating cash flow for the year ended 31 December 2002 increased by 17% to £391 million as compared to £333 million for the year ended 31 December 2001. The principal drivers include strong operating profit performance, an increase in dividend receipts from joint ventures and associates and the resumption of dividends from KAPCO. Capital expenditure on projects designed to maintain the operating capacity of our power stations was in line with the expenditure incurred in the previous year, reflecting the recurring and on-going nature of this expenditure.
Capital expenditure to increase our operating capacity amounted to £98 million as compared to £358 million for the year ended 31 December 2001. This programmed reduction in our capital expenditure reflects the progressive completion of our new build capacity in Massachusetts and Texas.
Net interest of £86 million (2001: £105 million) was paid in the year reflecting a small reduction in average debt levels over the course of the year, together with a slightly lower average cost of debt. Net tax payments in the year were £20 million (2001: £1 million). Acquisitions and disposals include a final payment of £133 million to TXU Europe in respect of the acquisition of our 1,000 MW Rugeley power station in the UK.
Balance Sheet
A summarised, re-classified presentation of the Group balance sheet is set out below:
| £m |
|
Year Ended |
|
Year Ended |
|
|
|
2002 |
|
2001 |
|
| Fixed assets |
|
|
|
|
|
| Intangibles & tangibles |
|
2,474 |
|
2,643 |
|
| Investments |
|
507 |
|
509 |
|
|
|
|
|
|
|
|
|
2,981 |
|
2,981 |
|
| Net current liabilities |
|
(138) |
|
(320) |
|
| Provisions and creditors > 1 yr |
|
(262) |
|
(238) |
|
| Net debt |
|
(812) |
|
(897) |
|
|
|
|
|
|
|
| Net assets |
|
1,769 |
|
1,697 |
|
|
|
|
|
|
|
| Gearing |
|
46% |
|
53% |
|
| Debt capitalisation |
|
31% |
|
35% |
|
Net assets at 31 December 2002 increased £72 million to £1,769 million, as compared to £1,697 million at the end of the previous year. This reflects our underlying profitability at £113 million, principally offset by £42 million reflecting the impact of foreign exchange on the net investment in foreign entities and their related borrowings.
Net debt at 31 December 2002 of £812 million is down from £897 million at 31 December 2001, reflecting the strong operating cash flow of the business and the positive impact of the translation of debt denominated in foreign currencies, which amounted to £98 million over the course of the year.
The above net debt of £812 million, excludes our share of joint ventures and associates debt of £503 million (2001: £487 million). These obligations are generally secured by the assets of the respective joint venture or associate borrower and are not guaranteed by International Power plc or any other Group company. In view of the significance of this amount, it has been disclosed separately.
As mentioned in the regional summaries, we are in discussions with bank groups in relation to the non-recourse debt for Rugeley and the US merchant asset portfolio. Until these issues are formally resolved and documented, the debt at Rugeley and ANP is reported as current secured non-recourse debt in our accounts. The maturity of the debt will be re-designated when these discussions reach a successful conclusion. In line with all non-recourse finance, any support to either of these facilities would be entirely discretionary, and would not have a material impact on the Group’s liquidity or investment capability.
Outlook
Two of our key merchant markets (US and UK) are at a low point in their cycles, with oversupply driving wholesale prices to uneconomic levels. Further removals of inefficient capacity are required to initiate any price recovery. There are indications that such removals of inefficient capacity will occur but not so quickly as to cause a significant improvement in power prices during 2003.
We remain focused on operational excellence and fiscal discipline. With respect to 2003, based on consistent assumptions of no acquisitions, no significant price recovery in Texas, New England and the UK, recurring Pakistan revenue, and no currency translation effects, our earnings per share guidance remains in the range of 9p to 11p.
For further information please contact:
Media contact:
Aarti Singhal
+44 (0)207-320-8681
Investor contact:
Grant Jones
+ 44 (0)207-320-8619
About International Power
International Power plc is a leading independent electricity generating company with 10,890MW (net) in operation, 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 as ADRs on the New York Stock Exchange on 2 October 2000. The ticker symbol on both stock exchanges is "IPR".
Full announcement including financials in PDF format.