Index

20. Provisions For Liabilities And Charges
21. Deferred Taxation
22. Share Capital
23. Reserves
24. Notes To The Cash Flow Statement
25. Acquisitions
26. Disposals
27. Net Debt
28. Financial Instruments
29. Commitments

 

20. PROVISIONS FOR LIABILITIES AND CHARGES

		Deferred		Rationalisation		Liability and		Other		Total
		tax		and restructuring		damage claims
a) The Group		£m		£m		£m		£m		£m
At 1 January 2001		27		27		4		20		78
Charged to profit and loss		-		-		-		2		2
(Credited) to profit and loss		-		(8)		-		-		(8)
Provisions utilised		-		(8)		(4)		-		(12)
At 31 December 2001		27		11		-		22		60

The majority of the rationalisation and restructuring provision relates to liabilities in respect of onerous property leases and employee-related compensation. These liabilities are not expected to arise in the short-term. Other provisions primarily comprises amounts provided for long service and annual leave liabilities, and for mine site restoration.

		Deferred		Rationalisation		Liability and				Total
		tax		and restructuring		damage claims
b) The Company		£m		£m		£m				£m
At 1 January 2001		27		23		4				54
(Credited) to profit and loss		-		(8)		-				(8)
Provisions utilised		-		(4)		(4)				(8)
At 31 December 2001		27		11		-				38

21. DEFERRED TAXATION

		31 December		31 December
		2001		2000
		£m		£m
Full potential deferred tax liabilities
Tangible fixed assets accelerated capital allowances		(149)		(163)
Other timing differences		(21)		(26)
Dividends of overseas subsidiary undertakings		(25)		(23)
Total gross deferred tax liabilities		(195)		(212)
Less: deferred tax liabilities not provided		168		185
Total deferred tax liabilities provided		(27)		(27)
Full potential deferred tax assets
Provisions		8		7
Tax losses		19		41
Other timing differences		11		41
Total gross deferred tax assets		38		89
Less: deferred tax assets not recognised		(38)		(89)
Total deferred tax asset recognised		-		-
Net deferred tax liability recognised		(27)		(27)

Deferred tax liabilities held by subsidiary undertakings at 31 December 2001 are £nil (31 December 2000: £nil).

The analysis of deferred tax assets less deferred tax liabilities not provided is as follows:

		Accelerated		Provisions		Tax		Other timing		Total
		capital				losses		differences
		allowances
		£m		£m		£m		£m		£m
As at 1 January 2001		(160)		7		41		16		(96)
Movement in respect of the year ended 31 December 2001		14		1		(22)		(27)		(34)
Total deferred tax not provided at 31 December 2001		(146)		8		19		(11)		(130)

Overseas subsidiary undertakings
Deferred tax in respect of unremitted earnings of overseas subsidiaries is only provided to the extent that there is an intention that profits will be remitted in the foreseeable future.

22. SHARE CAPITAL

		Authorised Ordinary				Issued and fully paid
		Shares of 50p		£m		Ordinary Shares of 50p		£m
Balance at 1 January 2001		1,700,000,000		850		1,117,461,155		559
Issue of shares under the Sharesave Scheme						87,883		-
Issue of shares under the Executive Share Option Schemes						9,425		-
Balance at 31 December 2001		1,700,000,000		850		1,117,558,463		559

Deferred Shares

The Company has 21 Deferred Shares of 1 pence each in issue. These shares were issued to ensure the demerger was effected as efficiently as possible. The holders of Deferred Shares have no rights to receive dividends or to attend or vote at any general meeting.

Employee share schemes

The Company operates a Sharesave Scheme and an Approved and an Unapproved Executive Share Option Plan. The Sharesave Scheme is savings-related and enables eligible employees to invest up to a maximum permitted level of £250 per month.

		Number of Ordinary Shares (million)
		Sharesave		Executive		Total
		Schemes		Share Option
Note				Schemes
a) Outstanding at 1 January 2001		1.9		9.9		11.8
Granted		1.5		2.2		3.7
b) Exercised/lapsed		(1.8)		(4.5)		(6.3)
a) Total options outstanding at 31 December 2001		1.6		7.6		9.2

								Number of
						Ordinary Shares (million)
		Option		Date		31 December		31 December
		price		exercisable		2001		2000
a) Options outstanding
Sharesave Schemes		246.01p		2002		0.1		1.0
		307.51p		2001		-		0.1
		307.51p		2003		-		0.2
		282.23p		2002		-		0.1
		282.23p		2004		-		0.1
		250.00p		2003		-		0.2
		250.00p		2005		-		0.2
		188.00p		2004		0.5		-
		188.00p		2006		0.3		-
		200.00p		2004		0.1		-
		200.00p		2006		0.6		-
Executive Share Option Schemes		297.94p		1996-2003		-		0.2
		336.21p		1997-2004		0.1		0.3
		306.14p		1998-2005		0.3		1.0
		323.23p		1999-2006		0.6		1.5
		386.09p		2000-2007		0.7		1.7
		352.61p		2001-2008		0.9		2.3
		311.75p		2003-2010		2.8		2.9
		235.00p		2004-2011		2.0		-
		217.00p		2004-2011		0.2		-
Total options outstanding						9.2		11.8

		Option		Number		Nominal		Consideration
		price		of options		value
b) Options exercised						£		£
Sharesave Schemes		246.01p		80,318		40,159		197,590
		307.51p		1,902		951		5,849
		282.23p		5,663		2,832		15,983
Executive Share Option Schemes		180.40p		9,425		4,712		17,003
Total options exercised during the year				97,308		48,654		236,425

c) Profit Sharing Share Scheme
In addition to the above, the Company operates an Inland Revenue Approved Profit Sharing Share Scheme. No further appropriations have been made in respect of this scheme. On 31 December 2001, a total of 800,072 shares in International Power plc were held by the Trustee on behalf of 3,201 present and former employees of the Group.

d) Restricted Share Plan
At the EGM of the Company held on 29 September 2000, shareholders approved the establishment of the Restricted Share Plan. Participants in the Plan are full-time Executive Directors who are required to devote substantially the whole of their working time to the duties of the Company and any subsidiaries of the Company (as designated by the Directors). Only Peter Giller participates in this Plan. The Company acquired 677,564 shares in International Power plc for a consideration of £1.7 million in the nine months ended 31 December 2000. On 2 October 2001, 225,854 shares were released to Peter Giller, the balance of shares remaining in trust.

e) Demerger Share Plan
At demerger, the Board of the Company established the Demerger Share Plan to provide an incentive to those employees (other than Executive Directors) who were remaining in continuous full-time employment with the Company. On 3 October 2000, the Board made conditional awards of 288,359 shares to 181 employees of the Company. No specific purchases of shares have been made in respect of this Plan to date as the Company is utilising the balance of shares unallocated from two former employee share plans that ceased operation at demerger (the total number of unallocated shares at 31 December 2001 was 269,923), to meet the vesting of conditional awards under the Demerger Share Plan. Conditional awards will normally vest to participants on the third anniversary of the demerger. During the year, a total of 9,002 shares have been released to individuals ceasing employment with the Company in accordance with their entitlement under the rules of the Demerger Share Plan.

23. RESERVES

		Share		Share		Capital		Capital		Profit		Total
		capital		premium		redemption		reserve		and loss		shareholders'
				account		reserve				account		funds-equity
a) The Group		£m		£m		£m		£m		£m		£m
Balance at 1 January 2001		559		289		140		422		273		1,683
Profit for the financial year		-		-		-		-		144		144
Other recognised gains and losses relating to the year (net)		-		-		-		-		(2)		(2)
Balance at 31 December 2001		559		289		140		422		415		1,825
b) The Company		£m		£m		£m		£m		£m		£m
Balance at 1 January 2001		559		289		140		415		240		1,643
Profit for the financial year		-		-		-		-		86		86
Balance at 31 December 2001		559		289		140		415		326		1,729

The share premium account, capital redemption reserve and capital reserve are not distributable.

The cumulative amount of goodwill set off to reserves prior to the adoption of FRS 10, on acquisition of subsidiary undertakings, is £95 million, net of exchange differences (nine months ended 31 December 2000: £95 million).

24. NOTES TO THE CASH FLOW STATEMENT

						Continuing		Discontinued		Group
				Year		Nine months		Nine months		Nine months
				ended		ended		ended		ended
				31 December		31 December		31 December		31 December
				2001		2000		2000		2000
Note		a) Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from operating activities		£m		£m		£m		£m
		Operating profit/(loss)		163		59		(109)		(50)
14		Depreciation		95		40		56		96
		Other non-cash movements		-		-		22		22
13		Goodwill amortisation		(1)		-		14		14
		Profit on disposal of fixed assets		1		-		-		-
		Movement in working capital:
		Decrease/(increase) in stocks		7		(10)		(31)		(41)
		Increase in debtors		(21)		(36)		(47)		(83)
		Increase/(decrease) in creditors		48		(15)		119		104
		Movement in provisions		(18)		(48)		(313)		(361)
		Net cash inflow/(outflow) from operating activities		274		(10)		(289)		(299)
		b) Dividends received from joint ventures and associates
		Dividends from joint ventures		7		10		-		10
		Dividends from associates		52		11		-		11
		Total dividends received from joint ventures and associates		59		21		-		21
		c) Returns on investments and servicing of finance
		Other interest and dividends received		24		74		1		75
		Debt and loan interest paid		(97)		(118)		(36)		(154)
		Debt issue costs paid		(32)		-		-		-
		Net cash outflow from returns on investments and servicing of finance		(105)		(44)		(35)		(79)
		d) Capital expenditure and financial investment
		Purchase of tangible fixed assets		(406)		(579)		(114)		(693)
15		Repayment of debt by associates		-		3		-		3
		Net cash outflow from capital expenditure and financial investment		(406)		(576)		(114)		(690)
		e) Acquisition and disposals
25		Purchase of subsidiary undertakings		(68)		(47)		(10)		(57)
		Cash proceeds on sale of subsidiary undertakings		14		5		-		5
26		Receipts from sale of investment in associate		372		-		-		-
		Other fixed asset investments		-		-		(2)		(2)
		Net cash inflow/(outflow) from acquisitions and disposals		318		(42)		(12)		(54)
		f) Financing activities
		Gas swap liability and other hedging activities		-		(38)		(140)		(178)
27		Bank loans		406		(126)		-		(126)
27		Convertible bond		-		250		-		250
23		Share issues		-		4		-		4
		Net cash inflow/(outflow) from financing activities		406		90		(140)		(50)

Included within the net cash inflow/(outflow) is an outflow of £13 million (nine months ended 31 December 2000: £56 million) in respect of exceptional items.

25. ACQUISITIONS

On 13 July 2001, the Group acquired Rugeley Power Limited, which has been accounted for by the acquisition method of accounting.
The assessment of net assets acquired and the consideration payable are given below:

		Book		Fair value		Fair
		value		adjustments		value
		£m		£m		£m
Tangible fixed assets		197		-		197
Stocks		7		-		7
Debtors		5		-		5
Creditors		(9)		-		(9)
Total net assets acquired		200		-		200
Negative goodwill						(3)
Consideration						197
Consideration comprises:
Cash						68
Deferred consideration						129
Total consideration						197

26. DISPOSALS

On 25 July 2001, the Group sold its 25% equity stake in Unión Fenósa Generacion SA. The net assets disposed of and profit on disposal are detailed below:

		£m
Cash consideration		372
Less: investment in associated undertaking		(342)
Profit on disposal		30

During the year the Group disposed of the majority of its remaining investments in China for net consideration of £14 million.

27. NET DEBT

		1 January		Exchange		Other		Cash flow		31 December
		2001		differences		non-cash				2001
						movements
		£m		£m		£m		£m		£m
Cash
Cash at bank and in hand		107		(8)		-		497		596
Liquid resources
Current asset investments		-		(1)		-		48		47
Debt financing
Loans due within one year		(88)		-		-		(24)		(112)
Loans due after more than one year		(855)		33		24		(382)		(1,180)
Convertible bond		(235)		(7)		(6)		-		(248)
Total debt financing		(1,178)		26		18		(406)		(1,540)
		(1,071)		17		18		139		(897)

28. FINANCIAL INSTRUMENTS

A discussion of the Group's objectives and policies with regard to risk management and the use of financial instruments can be found in the Operating and financial review and prospects. Financial instruments comprise net debt (see note 27) together with other instruments deemed to be financial instruments including long-term debtors and creditors and provisions for liabilities and charges.

a) Short-term debtors and creditors
Short-term debtors and creditors have been excluded from all the following disclosures other than the currency risk disclosures as relevant. The fair value of short-term debtors and creditors approximates to the carrying value because of their short maturity. In accordance with FRS 13 deferred tax has been excluded from the following disclosures.

b) Interest rate risk profile of financial liabilities
The interest rate profile of the financial liabilities of the Group as at 31 December 2001 was:

						31 December 2001						31 December 2000
		Total		Floating rate		Fixed rate		Total		Floating rate		Fixed rate
				financial		financial				financial		financial
				liabilities		liabilities				liabilities		liabilities
Currency		£m		£m		£m		£m		£m		£m
Sterling		12		12		-		47		47		-
US dollar		1,050		318		732		545		286		259
Australian dollar		474		104		370		573		144		429
Czech koruna		65		12		53		24		10		14
Others		18		°		18		-		-		-
Total		1,619		446		1,173		1,189		487		702

All the Group's creditors falling due within one year (other than bank and other borrowings) are excluded from the above tables either due to the exclusion of short-term items or because they do not meet the definition of financial liabilities. There are no material financial liabilities on which interest is not paid.

The effect of the Group interest swaps was to classify £370 million of floating rate Australian dollar borrowings as fixed rate, £443 million of floating rate US dollar borrowings as fixed rate and £15 million of variable rate Czech koruna borrowings as fixed rate, in the above table. In line with policy on translation exposure hedging, the Group has entered into cross currency swaps from sterling into Czech koruna of £38 million.

In addition to the above, the Group's provisions are considered to be floating rate financial liabilities as, in establishing the provisions, the cash flows have been discounted.

The floating rate financial liabilities comprise bank borrowings bearing interest rates fixed in advance for various time periods up to 12 months by reference to LIBOR for that time period. The figures in the tables below take into account interest rate and currency swaps used to manage the interest rate and currency profile of financial liabilities and financial assets.

				31 December 2001				31 December 2000
		Fixed rate financial liabilities				Fixed rate financial liabilities
		Weighted		Weighted		Weighted		Weighted
		average		average period		average		average period
		interest rate		for which		interest rate		for which
				rate is fixed				rate is fixed
Currency		%		Years		%		Years
Sterling		-		-		-		-
US dollar		6.01		4		4.94		4
Australian dollar		9.86		5		7.28		6
Czech koruna		13.02		1		13.02		2
Others		7.25		16		-		-
Weighted average		7.38		4		6.53		5

c) Interest rate risk of financial assets
The Group had the following financial assets as at 31 December 2001:

		31 December 2001						31 December 2000
		Total		Floating rate		Fixed rate		Total		Floating rate		Fixed rate
				financial		financial				financial		financial
				assets		assets				assets		assets
Currency		£m		£m		£m		£m		£m		£m
Sterling		71		71		-		18		18		-
US dollar		138		138		-		15		15		-
Euro		398		398		-		-		-		-
Australian dollar		71		71		-		47		47		-
Czech koruna		7		7		-		27		26		1
Others		6		6		-		-		-		-
Total		691		691		-		107		106		1

The cash deposits comprise deposits placed in money market funds, and a variety of investments with maturities up to three months. All investments are in publicly quoted stocks or treasury instruments. Letters of credit totalling £250 million are supported on a cash collateral basis at 31 December 2001.

d) Currency exposures
As explained under Net debt and capital structure of the Operating and financial review and prospects, the Group's objectives in managing the currency exposures arising during the normal course of business (in other words, its structural currency exposures) is to fully hedge all known contractual currency exposures, where possible. As at 31 December 2001 and 31 December 2000, these exposures were not considered to be material.

Currency exposures comprise the monetary assets and monetary liabilities of the Group that are not denominated in the operating (or 'functional') currency of the operating unit involved, other than certain non-sterling borrowings treated as hedges of net investments in overseas operations. For major currencies, it is not Group policy to hedge currency translation through forward contracts or currency swaps.

e) Maturity of financial liabilities
The maturity profile of the Group's financial liabilities, other than short-term creditors and accruals, was as follows:

		31 December		31 December
		2001		2000
		£m		£m
In one year or less, or on demand		127		88
In more than one year but not more than two years		390		319
In more than two years but not more than five years		749		298
In more than five years		353		484
Total		1,619		1,189

f) Borrowing facilities
The Group has substantial borrowing facilities available to it. The committed facilities available at 31 December 2001 in respect of which all conditions precedent have been met at that date amount to £1,502 million. The undrawn element of these were as follows:

		31 December 2001						31 December 2000
		Facility		Undrawn		Available		Undrawn		Available
		£m		£m		£m		£m		£m
US$540 million Corporate revolving credit facility (October 2004)		371		321		321		-		-
US$1,650 million and £235 million working capital facility (October 2001)		-		-		-		1,032		1,032
US$1,215 million ANP Funding 1 construction and term loan (June 2006)		835		161		161		-		-
US$120 million ANP Funding 1 revolving credit facility (June 2006)		82		82		82		-		-
US$40 million ANP Funding 1 letter of credit facility (June 2006)		28		15		15		-		-
Czk 2,000 million EOP term facility (February 2004)*		38		13		-		12		-
Czk 1,000 million EOP revolving credit facility (February 2004)		19		19		19		17		17
US$99 million Al Kamil term facility (April 2017)		68		3		3		-		-
£43 million Corporate letter of credit facility		43		13		13		-		-
£18 million Subsidiary facilities in various currencies		18		11		6		1		1
Total		1,502		638		620		1,062		1,050
* This can only be drawn once.

Uncommitted facilities available at 31 December 2001 were:

		31 December 2001						31 December 2000
		Total		Drawn		Undrawn		Total		Drawn		Undrawn
Facility		£m		£m		£m		£m		£m		£m
Bank borrowing and overdraft facilities		44		-		44		56		-		56
Pelican Point working capital facility		3		-		3		4		-		4
		47		-		47		60		-		60

Bank borrowing facilities are normally reaffirmed by the banks annually although they can theoretically be withdrawn at any time.
These facilities include a £43 million letter of credit facility which becomes committed for any letters of credit that have been drawn.
At 31 December 2001, £30 million of letters of credit had been drawn from this facility.

g) Fair values of financial assets and liabilities
Set out below is a comparison by category of book values and fair values of all the Group's financial assets and liabilities as at 31 December 2001.

		31 December 2001				31 December 2000
Primary financial instruments held or issued to finance the Group's operations		Book		Fair		Book		Fair
		value		value		value		value
		£m		£m		£m		£m
Short-term borrowings and current portion of long-term borrowings		(127)		(127)		(88)		(88)
Long-term borrowings		(1,492)		(1,497)		(1,101)		(1,103)
Cash deposits and current asset investments		691		691		107		107

		Year ended												Nine months ended
		31 December 2001												31 December 2000
Derivative financial instruments held to manage the interest rate, currency profile and exposure to energy prices		Notional		Carrying		Fair		Gain/		Gross		Gross		Gross		Gross
		book value		value		Value		(loss)		gain		(loss)		gain		(loss)
		£m		£m		£m		£m		£m		£m		£m		£m
		,
Interest rate swaps and similar instruments		829		-		(17)		(17)		-		(17)		-		(31)
Currency swaps		(38)		-		(2)		(2)		-		(2)		3		(1)
Forward foreign currency contracts		(74)		-		(2)		(2)		1		(3)		1		(3)
Energy derivatives		-		-		6		6		17		(11)		-		(2)

In addition to the above, debtors include £1 million (31 December 2000: £nil) in respect of the fair value of energy derivatives arising from proprietary trading.

The methods and assumptions used to estimate fair values of financial instruments are as follows:

i) For investments of up to three months, trade debtors, other debtors and prepayments, trade creditors, other current liabilities, longterm and short-term borrowings, the book value approximates to fair value because of their short maturity.

ii) The fair value of investments maturing after three months has been estimated using quoted market prices.

iii) The fair value of long-term borrowings and interest rate swaps has been calculated using market prices when available or the net present value of future cash flows arising.

iv) The fair value of the Group's forward exchange contracts, foreign currency swaps and foreign currency options has been calculated using the market rates in effect at the balance sheet dates.

v) The fair value of energy derivatives is measured using value at risk and other methodologies that provide a consistent measure of risk across diverse energy products. Within the above fair values, only the financial assets and liabilities have been marked-to-market as defined by the requirements of the accounting standard.

h) Hedges
As explained under Net debt and capital structure of the Operating and financial review and prospects, the Group's policy is to hedge the following exposures:

i) Interest rate risk - using interest rate swaps, options and forward rate agreements.

ii) Structural and transactional currency exposures - using currency borrowings, forward foreign currency contracts, currency options and swaps.

iii) Currency exposures on future expected sales - using currency swaps, forward foreign currency contracts, currency options and swaps.

iv) Energy price fluctuations - using physical hedges through the operation of energy supply and trading activities together with financial products.

Gains and losses on instruments used for hedging are not recognised until the exposure that is being hedged is itself recognised. Unrecognised gains and losses on instruments used for hedging, and the movements therein, are as follows:

		Debt		Foreign		Energy		Total net
				exchange		derivatives		gain/(loss)
		£m		£m		£m		£m
Unrecognised gains and (losses) on hedges at 1 January 2001		(31)		-		(2)		(33)
Gains and (losses) arising in previous periods that were recognised in the year ended 31 December 2001		(22)		2		-		(20)
Gains and (losses) arising in the year ended 31 December 2001 that were not recognised in the year		(8)		(2)		8		(2)
Unrecognised gains and (losses) on hedges at 31 December 2001		(17)		(4)		6		(15)
Of which:
Gains and (losses) expected to be recognised in the year ended 31 December 2002		-		(3)		9		6
Gains and (losses) expected to be recognised in the year ended 31 December 2003 or later		(17)		(1)		(3)		(21)

The hedging of structural currency exposures associated with foreign currency net investments are recognised in the balance sheet.

29. COMMITMENTS
 

		Group				Company
		31 December		31 December		31 December		31 December
		2001		2000		2001		2000
a) Lease and capital commitments		£m		£m		£m		£m
Capital commitments: contracted but not provided		166		314		-		-
Property leases (annual commitment):       expiring within one year		1		1		-		-
expiring between one and five years		1		1		-		-
expiring after five years		5		5		5		5

b) Fuel purchase and transportation commitments
The Group has contracts with fuel suppliers for the supply and transportation of fuel to its power stations. The expiry of these contracts ranges from 2002 to 2021.