|
International Power delivered strong financial performance during
2001. Profit before interest and tax (PBIT), excluding exceptional
items, was up 48% to £326 million from £221 million in 2000. Earnings
per share (basic) were up 75% to 12.8p from 7.3p in 2000. Operating
cash flow increased to £333 million compared to £11 million for
the prior nine-month period.
Key performance drivers underlying these strong results in 2001
include the addition of new operating capacity in the US at our
new plants in Massachusetts and Texas and the operation of those
units during the summer peak demand period. Also, the excellent
operating performance of our power plants in all regions resulted
in profit improvements in each of our key markets.
 |
| Results - excluding exceptional
items (continuing business
only) |
|
|
|
|
Year ended
|
|
Nine months ended
|
|
|
|
|
|
31 December |
|
31 December |
|
31 December |
|
31 December |
|
Year ended |
|
| |
|
2001 |
|
2000 |
|
2000 |
|
1999 |
|
31 March |
|
|
|
|
|
(proforma) |
|
|
|
(proforma) |
|
2000 |
|
|
|
£m |
|
£m |
|
£m |
|
£m |
|
£m |
|
|
|
| Turnover -
gross |
|
1,103 |
|
1,002 |
|
762 |
|
705 |
|
1,021 |
|
|
| Profit before
interest and tax |
|
326 |
|
221 |
|
167 |
|
137 |
|
191 |
|
| Interest |
|
(123) |
|
(104) |
|
(81) |
|
(73) |
|
(96) |
|
| Tax |
|
(58) |
|
(29) |
|
(21) |
|
(50) |
|
(58) |
|
| Minority interests |
|
(2) |
|
(6) |
|
(4) |
|
1 |
|
(1) |
|
|
|
|
143 |
|
82 |
|
61 |
|
15 |
|
36 |
|
|
| Earnings per
share |
|
12.8p |
|
7.3p |
|
5.5p |
|
1.2p |
|
3.0p |
|
|
| The proforma results for
the year to 31 December 2000 are unaudited and have been
derived by aggregating the results for the nine months
ended 31 December 2000 and the management accounts for
the three months to 31 March 2000, and making proforma
adjustments to interest and tax to reflect the post-demerger
capital structure. |
| The proforma results for
the nine months ended 31 December 1999 are unaudited.
|
|
This report reviews our results of operations on a regional basis
to provide an understanding of the key factors impacting our historical
trading performance. The results for each period, both 2001 and
2000, are compared primarily with the results for the corresponding
comparative period. Our results are prepared in accordance with
UK Generally Accepted Accounting Principles (GAAP). As announced
at the time of presenting our Q3 results, we redefined our business
segments with effect from 31 December 2001 to better represent how
we manage the business. For clarity, our results are presented in
this new format.
The table below sets out details in relation to our operating power
plants and plants under construction
as at 18 March 2002.
|
|
|
| Plant |
|
Type |
|
Gross capacity
MW power |
|
Gross capacity
MW heat |
|
Net capacity
(2)
MW power |
|
Net capacity
(2)
MW heat |
|
|
|
| North America |
| Hartwell, Georgia,
US |
|
OCGT |
|
310 |
|
|
|
155 |
|
|
|
| Oyster Creek, Texas,
US |
|
Cogen/CCGT |
|
425 |
|
60 |
|
210 |
|
30 |
|
| Milford, Massachusetts,
US |
|
CCGT |
|
160 |
|
|
|
160 |
|
|
|
| Midlothian I & II,
Texas, US |
|
CCGT |
|
1,650 |
|
|
|
1,650 |
|
|
|
| Blackstone, Massachusetts,
US |
|
CCGT |
|
570 |
|
|
|
570 |
|
|
|
| Hays (unit I), Texas,
US |
|
CCGT |
|
275 |
|
|
|
275 |
|
|
|
| Europe and Middle East |
| EOP, Czech Republic
(1) |
|
Steam |
|
540 |
|
2,000 |
|
535 |
|
1,920 |
|
| Deeside, UK |
|
CCGT |
|
500 |
|
|
|
500 |
|
|
|
| Rugeley, UK |
|
Steam |
|
1,000 |
|
|
|
1,000 |
|
|
|
| Elcogas, Spain |
|
IGCC |
|
335 |
|
|
|
15 |
|
|
|
| Pego, Portugal |
|
Steam |
|
600 |
|
|
|
270 |
|
|
|
| Marmara, Turkey |
|
CCGT |
|
480 |
|
|
|
160 |
|
|
|
| Australia |
| Hazelwood, Victoria,
Australia |
|
Steam |
|
1,600 |
|
|
|
1,470 |
|
|
|
| Synergen, South
Australia, Australia |
|
Various |
|
360 |
|
|
|
360 |
|
|
|
| Pelican Point, South
Australia, Australia |
|
CCGT |
|
485 |
|
|
|
485 |
|
|
|
| Rest of World |
| HUBCO, Pakistan |
|
Steam |
|
1,290 |
|
|
|
330 |
|
|
|
| KAPCO, Pakistan |
|
CCGT |
|
1,600 |
|
|
|
575 |
|
|
|
| Malakoff, Malaysia
(1) |
|
Various |
|
1,495 |
|
|
|
290 |
|
|
|
| Shijiazhuang Yong
Tai, PRC |
|
Cogen |
|
15 |
|
90 |
|
10 |
|
65 |
|
| Yihua, PRC |
|
Cogen |
|
40 |
|
75 |
|
10 |
|
10 |
|
| Pluak Daeng, Thailand |
|
Cogen |
|
110 |
|
20 |
|
110 |
|
20 |
|
|
| TOTAL operating |
|
|
|
13,840 |
|
2,245 |
|
9,140 |
|
2,045 |
|
|
|
|
| Under construction |
| North America |
| Hays, Texas (units
II, III, IV), US |
|
CCGT |
|
825 |
|
|
|
825 |
|
|
|
| Bellingham, Massachusetts,
US |
|
CCGT |
|
570 |
|
|
|
570 |
|
|
|
| Europe and Middle East |
| Shuweihat S1, UAE |
|
CCGT |
|
1,500 |
|
|
|
300 |
|
|
|
| Al Kamil, Oman |
|
CCGT |
|
280 |
|
|
|
280 |
|
|
|
| Rest of World |
| Malakoff Lumut,
Malaysia |
|
CCGT |
|
210 |
|
|
|
40 |
|
|
|
|
| TOTAL under
construction |
|
|
|
3,385 |
|
|
|
2,015 |
|
|
|
|
| (1) Gross capacity amount
shown for EOP and Malakoff represents the actual net capacity
owned directly or indirectly by EOP and Malakoff, respectively.
|
| (2) Net capacity - Group
share of gross capacity. |
North America consists of plants in Georgia,
Massachusetts and Texas, which had a maximum net generating capacity
of 3,019 MW in 2001. We will complete our current construction programme
in Massachusetts and Texas in 2002, bringing our total net installed
capacity in North America to 4,400 MW. In addition, we have projects
under development in New York totalling 1,650 MW. We also conduct
energy trading activities that are principally focused on selling
the physical output of our plants. However, we also perform limited
proprietary trading that is subject to clear risk limits.
Gross turnover in North America increased by 58% from £150 million
in 2000 to £237 million in 2001. Our share of turnover from joint
ventures during the year ended 31 December 2001 was £77 million
(32% of the region's total gross turnover), an increase of 3% as
compared to the year ended 31 December 2000. 2001 was an important
transition year for our North American business as we brought into
operation a significant amount of new capacity in Massachusetts
and Texas. The increase in gross turnover principally reflects this
increase in generating capacity - maximum capacity of 3,019 MW in
2001 compares with 1,074 MW in 2000. Our North American proprietary
trading business contributed £4 million to PBIT during the year
ended 31 December 2001.
For the 2001 period, we entered into forward sales and purchase
contracts to shield us from adverse price fluctuations. Consequently,
our plants in Massachusetts (NEPOOL) and Texas (ERCOT) achieved
spreads (the difference between the selling price of power plus
ancillary services and the cost of fuel) considerably higher than
the spot market. For the component of our output that is not forward
contracted, we remain exposed to fluctuations in market prices.
To the extent that our output is not forward contracted, we remain
exposed to fluctuations in market price. However, we are able to
utilise the peak load flexibility of our new plants to take advantage
of favourable price opportunities as they arise. We also use our
trading and marketing expertise to maximise the revenue from ancillary
services available in the markets where we operate.
During the 12-month period ended 31 December 2001, we recorded
other operating income of £80 million relating to the late commissioning
and performance recovery of our new power plants (£28 million in
2000). This compensation for loss of income is receivable from Alstom,
who is both the manufacturer of the gas turbines and the principal
contractor for the construction of our new North American plants.
The commercial and technical arrangements that support Alstom's
completion of our North American plants, and the performance recovery
programme for the GT 24B gas turbines, both continue to meet expectations.
Alstom has demonstrated technical progress and continued to meet
its commercial responsibilities.
Operating profit increased by 116% from £43 million to £93 million.
The increase in operating profit primarily reflects the increased
turnover of our North American operations, together with the impact
of compensation for the late commissioning and performance recovery
of our new plants.
We will complete our current construction programme in Massachusetts
and Texas in 2002, bringing our total net installed capacity in
North America to 4,400 MW. In addition, we have projects under development
in New York totalling 1,650 MW. Operating costs consist of both
fixed operating costs, such as depreciation, payroll and property
taxes, and variable operating costs, such as fuel costs. Our fixed
cost base increased in line with the completion of the construction
programme and variable costs tracked our profile of physical output.
Where appropriate, we seek to minimise the impact of fluctuations
in fuel supply cost by locking in our fuel supply at the same time
that we sell our ouput.
Europe and Middle East consists of two
plants in the UK together with our plants in the Czech Republic,
Portugal and Turkey. In addition, we have a plant under construction
in Oman and projects under development in Italy and Abu Dhabi. In
July 2001, we completed two significant transactions that rebalanced
our European portfolio, increased the installed capacity under our
direct control and reduced our minority position in legacy assets.
Specifically, we sold back our 25% equity ownership in UFG (Spain)
to Union Electrica Fenosa and acquired the 1,000 MW coal-fired Rugeley
plant in the UK. Our total installed capacity in this region at
31 December 2001 was 2,477 MW, as compared to 2,810 MW at 31 December
2000, and the capacity that we now control and operate in Europe
and Middle East increased from 1,497 MW to 2,464 MW. When the plants
in Oman and Abu Dhabi are completed in 2002 and 2004 respectively,
our net installed capacity will be 3,057 MW.
Gross turnover in Europe and Middle East decreased by 2% from
£534 million in the year ended 31 December 2000 to £521 million
in the year ended 31 December 2001. The decrease principally relates
to the sale of our interest in UFG, partially offset by the acquisition
of Rugeley. Turnover from joint ventures and associates in the region
during 2001 was £351 million (67% of the region's gross turnover),
a decrease of 6% as compared to 2000, again reflecting the sale
of UFG.
Operating profit, excluding exceptional items, increased by 10%
from £128 million in the year ended 31 December 2000 to £141 million
for the year ended 31 December 2001. The increase in operating profit
reflects our share of the profitability of UFG prior to its sale
in July 2001 and the contribution from Rugeley since its acquisition,
also in July 2001.
In Europe and Middle East, all of our output in 2001 was subject
to either long-term power purchase agreements, tolling agreements
or shorter term forward sales contracts. In the UK, we have a tolling
agreement for Rugeley until the end of 2005, but our forward sales
contract for Deeside (500 MW) terminates in March 2002. We are looking
to forward sell output from Deeside, where appropriate, but lower
UK wholesale prices mean that this plant will be more exposed to
fluctuations in market prices. In the Middle East, our Al Kamil
plant (285 MW) under construction in Oman and our Shuweihat S1 power
and desalination plant (1,500 MW gross; 300 MW net; 100 million
imperial gallons per day) under construction in Abu Dhabi are both
subject to long-term power purchase and off-take agreements.
Our Italian greenfield development programme continues to move
forward in partnership with Ansaldo Energia. Three of the projects
- Alessandria (1,600 MW), Montecchio Maggiore (800 MW) and Offlaga
(1,600 MW) - are now under formal review by the Ministry of Industry.
Within the next few months, we expect to submit applications for
an additional three projects. Recently, we increased our ownership
stake in eight of the nine projects to 75.5% (our equity stake in
Offlaga remains 49%), while Ansaldo continues to hold the other
24.5% position in the eight projects.
Australia consists of one plant in Victoria
(Hazelwood), one plant in South Austrialia (Pelican Point) and the
Synergen peaking units, also located in South Australia. We also
conduct energy trading activities and, in line with our business
in North America, these are principally focused on selling the physical
output of our plants. However, we also perform limited proprietary
trading, which again is subject to clear risk limits.
Turnover in
Australia increased by 46% from £133 million to £194 million. We
do not have any joint ventures and associates in Australia. This
increase principally reflects improved electricity prices in Victoria
- since Q3 2000 both spot and forward prices in Victoria improved
significantly, allowing the forward contracting of power at improved
margins. The average price secured in Australia in 2001 was approximately
A$40 per MWh, as compared to A$35 per MWh in 2000. In addition,
turnover increased as a result of our Pelican Point plant in South
Australia commencing combined cycle commercial operation in March
2001. Our megawatts in operation in Australia increased from 1,828
MW at the end 2000 to 2,315 MW at 31 December 2001, an increase
of 27%.
Operating profit increased by 36% from £53 million to £72 million.
Margins in Victoria benefited from the combined effects of improved
wholesale electricity prices and our ownership of Hazelwood's fuel
supply, an open pit lignite mine located adjacent to the plant.
Pelican Point was successfully commissioned on time and also contributed
to this improvement in operating profit.
Development of the 680 km SEA Gas pipeline project, in which we
have a 50% interest, continues to move forward. We have obtained
the pipeline licence in South Australia and Indigenous Land Use
Agreement in Victoria. The total project is estimated to cost £90
million, and will provide us with a reliable fuel supply, incremental
revenue and significant cost savings.
The Rest of World consists principally
of plants in Pakistan, Malaysia and Thailand, representing a total
net capacity of 1,340 MW. In addition, the capacity of our existing
plant in Malaysia is being increased by 50% (a net MW increase of
125 MW).
Gross turnover from assets located outside our three core regions
decreased by 18% from £185 million to £151 million. Our share of
turnover from associates in this category during the year ended
31 December 2001 was £118 million, a decrease of 26% as compared
to the year ended 31 December 2000. The decrease in gross turnover
from generation principally reflects the sale of the majority of
the Chinese operations, as well as the effect of changing the accounting
treatment for our investments in Karaganda (Kazakhstan) and Kot
Addu (Pakistan) from the equity method of accounting to trade investments
as at 1 April 2000.
Following the resolution of the long running tariff dispute with
WAPDA, in November 2001 we received from the Hub Power Company in
Pakistan (HUBCO, of which we own 26%) a £5 million interim dividend
payment relating to their year ended 30 June 2001. This interim
dividend was the first to be paid to HUBCO shareholders in over
three and a half years. In January 2002 we received £7 million relating
to the final dividend for 2001, and in February 2002, HUBCO declared
an interim dividend for their financial year ended 30 June 2002
- our share is approximately £12 million and receipt of this is
anticipated in Q2 2002.
We have long-term power purchase agreements for each of our plants
in this region and therefore financial performance will not be subject
to fluctuations in energy prices. In common with most power purchase
agreements, availability is the key factor in determining profitability
and all our plants continue to maintain excellent standards.
Operating profit, excluding exceptional items, increased by 20%
from £40 million to £48 million. This increase in operating profit
reflects a full year contribution from our Thailand plant that was
commissioned in 2000 and from our interest in HUBCO, now that WAPDA
are paying their receivables in line with the previously disclosed
settlement agreement.
With respect to our other asset in Pakistan, the Kot Addu Power
Company (KAPCO; of which we own 36%), the principal terms for implementing
the settlement agreement have been agreed and a formal signing is
expected soon. This should enable the subsequent declaration and
payment of dividends.
Gross turnover in North America increased 130% from £50 million
to £115 million. Our share of turnover of joint ventures during
the nine-month period ended 31 December 2000 was £63 million (55%
of gross turnover), an increase of 34% as compared to the same period
in 1999. The increase in gross turnover principally reflects the
commencement of commercial operations of one new Midlothian plant
in Texas.
Operating profit, excluding exceptional items, increased by 48%
from £23 million to £34 million, reflecting increased turnover;
operating profit also includes £28 million of payments in respect
of compensation for lost output due to the late commissioning of
power plants. Operating costs consist of fixed operating costs,
such as depreciation and payroll, and variable operating costs,
such as fuel supply. Depreciation increased during the period as
a result of new construction. During 1999, we disposed of our equity
investments in the Mecklenburg and Hopewell facilities. These disposals
resulted in a total gain of £9 million, which was recorded as operating
income, which offset operating costs for the period.
Gross turnover in Europe and Middle East increased by 21% from
£336 million to £405 million. The increase in gross turnover relates
principally to the acquisition of a 25% interest in UFG on 30 June
1999 and the commencement of operations at the Marmara facility
in Turkey in June 1999.
Operating profit, excluding exceptional items, increased 17% from
£75 million to £88 million. The increase in operating profit reflects
a full nine-month contribution from UFG and Marmara and also improved
performance at our Deeside facility in the UK, which benefited from
the off-take and fuel supply contract negotiated prior to demerger.
Gross turnover in Australia remained relatively stable, decreasing
from £107 million to £106 million. Operating profit, excluding exceptional
items, decreased 4% from £48 million to £46 million. The results
for 2000 reflect a first-time contribution from our Synergen plant,
which we acquired in May 2000. This increase in contribution was
offset by a small decline in contribution from Hazelwood due to
slightly increased outage costs in 2000.
Gross turnover in Rest of World decreased 36% from £212 million
to £136 million. Our share of turnover from joint ventures and associates
during the nine months to 31 December 2000 was £111 million, a decrease
of 26% as compared to the nine months to 31 December 1999. The decrease
in gross turnover from generation principally reflects the effect
of the change of accounting treatment with respect to our investments
in Karaganda (Kazakhstan) and Kot Addu (Pakistan) from the equity
method of accounting to trade investments as at 1 April 2000.
Operating profit, excluding exceptional items, increased 74% from
£19 million to £33 million. The increase in segmental operating
profit reflects the increased contribution from our Thailand plant
and our interest in HUBCO.
Following the consolidation of our corporate office in London
and the increased management focus on cost control, corporate costs
decreased by £15 million from £43 million for the year ended 31
December 2000 to £28 million for the year ended 31 December 2001,
a reduction of 35%. Corporate costs include not only corporate functions
but also business support costs for our operations worldwide.
The Group accounts for the year ended 31 December 2001 include
five exceptional items - an £8 million credit arising from the release
of an onerous property lease provision; a £10 million charge in
respect of a guarantee given for Elcogas (Spain); a £2 million release
of the provision for the exit costs from China; and a £30 million
gain on the sale of our 25% stake in UFG. The first two items (net
charge of £2 million) are reported as operating exceptionals, and
the latter two (net credit of £32 million) are reported as non-operating
exceptionals. The Group accounts also include an exceptional interest
charge of £29 million in 2001 (relating to the refinancing at Hazelwood,
Australia), which is described in more detail in net
interest.
In the nine months ended 31 December 2000, three exceptional charges
were recorded - £49 million relating to costs arising out of the
demerger of Innogy, £25 million of reorganisation costs relating
to the restructuring following demerger and a provision of £25 million
to cover exit costs from the Chinese market.
In the year ended 31 March 2000, a number of the overseas assets
were impaired by an aggregate of £246 million as a result of the
commercial circumstances in their respective markets. The impairment
principally arose in Pakistan and Australia. Additionally, the Group
recorded initial provisions of £4 million, £14 million and £35 million
in relation to reorganisation costs, demerger costs and gas swaps
and hedges, respectively.
Net interest payable for the year to 31 December 2001 was £123
million, before exceptional items. Corporate and subsidiary operations
accounted for interest payable of £76 million, comprising primarily
of gross interest of £123 million on bonds, bank loans and overdrafts,
offset by £24 million interest receivable and by capitalised interest
of £23 million. Joint ventures and associates had a net interest
payable of £47 million. Consolidated interest cover was 2.7 times
(2.4 times excluding interest capitalised). All banking and credit
rating covenants were comfortably met with significant margins.
Included in exceptional items for the year ended 31 December 2001
is an interest charge of £29 million. This represents the cost of
cancelling the existing interest rate swaps and capitalised arrangement
fees following the successful refinancing of the non-recourse debt
facility for the Hazelwood power plant in Victoria, Australia. This
refinancing reduces our interest cost, extends the average maturity
of the debt and allows the release of cash to the parent company.
Amounts reported for Group interest in the period to 30 September
2000 allocated net interest payable between Innogy and International
Power on the basis that the debt assumed by each party at demerger
was attributed to that party over all periods presented, or since
the debt arose. Consequently, net interest charges for that period
do not necessarily reflect our capital structure as it would have
been had we operated as an independent entity during the period.
The tax charge for the year was £58 million compared with £21
million for the nine months ended 31 December 2000. The tax charge
represents an effective tax rate of 28%, compared to 24% in the
prior period.
The Group has continued to benefit from the utilisation of tax
losses and the availability of certain overseas tax concessions.
These concessions are expected to expire in the medium-term.
The allocation of the tax liabilities of National Power in the
period to 30 September 2000 between the ongoing operations and those
subsequently demerged was calculated as if Innogy operated on a
stand-alone basis, with the balance of tax charges allocated to
International Power. Consequently, tax charges do not necessarily
reflect the business or results of operations of International Power
as they would have been had we operated as an independent entity
during the period.
In the near-term, we continue to face weak prices in selected
wholesale markets, principally Texas and the UK. The price environment
continues to be driven by concerns on the economy, cyclical supply/demand
imbalances and by recent mild weather patterns, rather than by the
fundamental economics of owning and operating modern efficient power
generation. These prevailing market conditions should improve as
a result of the enhanced prospect for economic recovery and the
substantial contraction in project development and new construction
activity.
Steps taken in the past year have resulted in a usefully strengthened
balance sheet relative to our peer group, a significant increase
in our cash flow and ready liquidity to take advantage of the many
opportunities currently available in the marketplace. In this environment,
International Power has good prospects for continued growth and
the creation of additional value for shareholders.
As announced within our Q3 2001 results, we redefined our business
segments with effect from 31 December 2001 to reflect:
- our strategic focus on three principal markets: North America,
Europe and Middle East, and Australia;
- a more coherent geographic grouping of our power portfolio;
- the fact that each of our proposed segments tend to share common
characteristics, including their political risk profile, currency
risk profiles and competitive environment. The table below sets
out a side-by-side comparison of our previous and new business
segments:
| Previous business segments |
New business segments |
| North America |
North America |
| Central and Northern Europe |
Europe and Middle East |
| Western Mediterranean |
Europe and Middle East |
| Eastern Mediterranean |
|
| Turkey |
Europe and Middle East |
| Middle East |
Europe and Middle East |
| Pakistan |
Rest of World |
| Asia |
Rest of World |
| Australia |
Australia |
The key accounting policies are summarised below. There are no
entities that have not been properly included in the consolidated
accounts, and no sale and leaseback (or similar) transactions that
could have the effect of transferring debt off the balance sheet.
Income recognition
Turnover, from plants subject to power purchase agreements (PPAs),
is recognised in accordance with the contract terms.
Turnover from merchant plants is recognised as output delivered,
after taking account of related hedging contracts.
Liquidated damages (LDs), principally in respect of late commissioning,
are currently included in other operating income. These LDs are,
in substance, intended to replace the income that would otherwise
have been earned.
Proprietary trading income is recognised on the basis of completed
contracts and the mark-to-market values of outstanding contracts
at the period end.
 Tangible
fixed assets
The original cost of greenfield assets includes relevant borrowing
and development costs:
- Interest on borrowings relating to major capital projects with
long periods of development is capitalised during their construction
and written-off as part of the total cost over the useful life
of the asset.
- Project development costs (including appropriate direct internal
costs) are capitalised from the point that the Board confirms
that it is reasonably certain that the project will proceed to
completion.
Depreciation of plant is charged so as to write down the assets
to their residual value over their estimated useful lives:
- Following a recent review of secondary market values, gas turbines
and related equipment are depreciated over 30 years to a 10% residual
value, unless the specific circumstances of the project indicate
a shorter period.
- Coal plant is considered on an individual basis.
Management regularly considers whether there are any indications
of impairments of the carrying values of fixed assets (e.g. the
impact of current adverse market conditions). Impairment reviews
are based on discounted future cash flows that inevitably require
estimates of discounts and future market prices.
Joint ventures and associates
Under normal accounting practice, joint ventures and associates
are required to be 'equity accounted'. This involves including only
the Group's share of operating profit, interest and taxation in
the profit and loss account and net assets in the balance sheet,
as single line items. Due to the significance of associates, there
is additional disclosure in the notes to the
accounts.
Other
All entities in which the Company has an interest are appropriately
treated in the financial statements. There are no material leasing
arrangements which have the effect of removing assets and related
debt from the balance sheet.
FINANCIAL
POSITION AND RESOURCES
A summary of the Group cash flow is set out below. The figures
included for the nine months ended 31 December 2000 represent the
cash flows of the continuing business only.
|
|
|
Year ended |
|
Nine months |
|
|
|
31 December |
|
ended |
|
|
|
2001 |
|
31 December |
|
|
|
|
|
2000 |
|
|
|
£m |
|
£m |
|
| Operating
profit |
|
163 |
|
59 |
|
| Depreciation
and amortisation |
|
95 |
|
40 |
|
| Dividends
from joint ventures and associates |
|
59 |
|
21 |
|
| Working capital
and provisions |
|
16 |
|
(109) |
|
|
| Operating
cash flow |
|
333 |
|
11 |
|
| Capital expenditure
- maintenance |
|
(48) |
|
(36) |
|
| Tax and interest
paid |
|
(106) |
|
(54) |
|
|
| Free cash
flow |
|
179 |
|
(79) |
|
| Capital expenditure
- growth |
|
(358) |
|
(540) |
|
| Acquisitions
and disposals |
|
318 |
|
(42) |
|
| National Power
dividend |
|
- |
|
(116) |
|
| Foreign exchange
hedging and other |
|
35 |
|
(33) |
|
|
| Movement
in net debt |
|
174 |
|
(810) |
|
| Opening net
debt |
|
(1,071) |
|
(261) |
|
|
| Closing net
debt |
|
(897) |
|
(1,071) |
|
|
|
Operating cash flow for the year ended 31 December 2001 increased
to £333 million as compared to £11 million for the nine months ended
31 December 2000. The principal drivers include strong operating
profit performance, an increase in dividend receipts from joint
ventures and associates (up from £21 million to £59 million) and
a reduction in working capital and provisions. Capital expenditure
on projects designed to maintain the operating capacity of our power
stations was stable at £48 million on an annualised basis. Capital
expenditure to increase our operating capacity amounted to £358
million as compared to £540 million for the nine months ended 31
December 2000. This programmed reduction in our capital expenditure
reflects the progressive completion of our new build capacity in
Massachusetts and Texas.
Net interest of £105 million was paid in the year reflecting higher
levels of average debt in 2001, partially offset by lower average
rates of interest. Net tax payments in the year were £1 million.
Acquisitions and disposals include the net proceeds of £372 million
on the sale of our 25% interest in UFG and an initial payment of
£67 million to TXU in respect of the acquisition of our 1,000 MW
Rugeley power station in the UK. The balance of the total consideration
of £200 million was paid to TXU in January 2002.
A
summarised, re-classified presentation of the Group balance sheet
is set out below:
|
|
|
31 December |
|
31 December |
|
|
|
2001 |
|
2000 |
|
|
|
£m |
|
£m |
|
|
|
| Fixed assets |
| Intangibles
and tangibles |
|
2,622 |
|
2,188 |
|
| Investments |
|
515 |
|
824 |
|
|
| Total fixed
assets |
|
3,137 |
|
3,012 |
|
| Net current
liabilities |
|
(320) |
|
(117) |
|
| Provisions
and creditors over one year |
|
(68) |
|
(89) |
|
| Net debt |
|
(897) |
|
(1,071) |
|
|
| Net assets |
|
1,852 |
|
1,735 |
|
|
| Gearing |
|
48% |
|
62% |
|
| Debt capitalisation |
|
33% |
|
38% |
|
|
Net assets at 31 December 2001 amounted to £1,852 million, as compared
to £1,735 million at 31 December 2000, reflecting the underlying
profitability of the Group for the year.
Net debt at 31 December 2001 of £897 million is net of facility
fees of £29 million, which have been capitalised and offset against
the debt in accordance with accounting standard FRS 4. The facility
fees were incurred in successfully securing new debt facilities
across the Group, particularly in the US and Thailand.
Net debt at 31 December 2001 of £897 million is down from £1,071
million at 31 December 2000, reflecting our improved operating cash
flow, a reduction in our committed capital expenditure as our US
construction programme moves toward completion, and the sale of
our interest in UFG for £372 million in July 2001. Gearing at 31
December 2001 was 48% (31 December 2000: 62%) and debt capitalisation
was 33% (31 December 2000: 38%).
Group net debt at 31 December comprised:
|
|
|
2001 |
|
2000 |
|
|
|
£m |
|
£m |
|
| Cash and liquid
investments |
|
643 |
|
107 |
|
| Loans - recourse |
|
(41) |
|
(399) |
|
| Loans - non-recourse |
|
(1,251) |
|
(544) |
|
| Convertible
bond |
|
(248) |
|
(235) |
|
|
| Net debt |
|
(897) |
|
(1,071) |
|
|
|
The above net debt of £897 million, excludes the Group's share
of joint ventures and associates debt of £487 million. In view of
the significance of this amount, it has been disclosed separately.
In June 2001, we completed the US$1.375 billion (£945 million)
ANP credit facility to finance our 4,000 MW merchant power fleet
in the US, comprising a portfolio of five generating stations located
in Massachusetts and Texas. This funding structure has been assigned
investment grade credit ratings by Standard & Poor's (BBB-) and
Moody's (Baa3). The construction programme benefits from economies
of scale arising through the use of common turbine technology and
a single Engineering Procurement and Construction (EPC) contractor
for all plants. This financing was a major step to enhance the capital
structure of International Power.
In July 2001, we completed a US$45 million (£31 million) project
finance facility to re-finance our wholly owned subsidiary, Thai
National Power, for the construction of our 110 MW gas-fired cogeneration
plant.
In October 2001, we finalised a £371 million corporate revolving
credit facility with a three-year maturity. The facility increases
our financial flexibility to pursue business development and acquisition
opportunities.
In December 2001, our joint venture with CMS Energy (of the US)
and the Abu Dhabi Water and Electricity Authority (ADWEA) established
a US$1.6 billion (£1.1 billion) facility to finance construction
of the Shuweihat S1 power and water desalination project in Abu
Dhabi. The financing structure comprises a US$1.285 billion 20-year
term loan and a US$351 million equity bridge facility. The term
loan includes a US$250 million Islamic tranche arranged by Abu Dhabi
Islamic Bank. The arrangement of this combined conventional and
Islamic financing is a major achievement for the Shuweihat sponsors,
particularly given the difficult market circumstances.
Pension case resolution
In April 2001, the House of Lords ruled in our favour in respect
of the pensions case relating to the use of the pension surplus
by National Power in 1992 and 1995, for which we had contingent
funding of £235 million. This contingent funding is no longer required
and has been cancelled.
Rating agencies In
June 2001, resolution of the pension case was among the factors
cited by Moody's Investors Service when the rating agency changed
its outlook for our long-term debt from stable to positive. Moody's
improved outlook was also supported by: our successful commissioning
of plants in the US, Australia and Thailand; the Rugeley acquisition;
the settlement agreements in Pakistan; improvements in the Australian
power market; and the completion of the funding for our US build
programme. In August 2001, Standard & Poor's reaffirmed its BB rating
of our long-term corporate credit and senior unsecured debt ratings.
 TREASURY
POLICY
Treasury policy seeks to ensure that adequate financial resources
are available for the development of the Group's business whilst
managing its currency, interest rate and counterparty credit risks.
The Group's treasury policy is not to engage in speculative transactions.
Group treasury acts within clearly defined guidelines that are approved
by the Board. The major areas of treasury activity are set out below.
In common with other international companies, the results of the
Group's foreign operations are translated into sterling at the average
rates for the periods concerned. The balance sheets of foreign operations
are translated into sterling at closing exchange rates. This translation
has no impact on the cash flow of the Group. In order to hedge the
net assets of foreign operations, borrowings are generally in the
same currency as the underlying investment. The Group aims to hedge
a reasonable proportion of its non-sterling assets in this way.
For major currencies, it is our policy not to hedge currency translation
through foreign exchange contracts or currency swaps.
|
| Average and year end sterling
exchange rates for major currencies which are significant
to the Group were: |
|
|
|
|
Average |
|
At 31 December
2001 |
|
| US dollar |
|
1.44 |
|
1.46 |
|
| Australian
dollar |
|
2.79 |
|
2.84 |
|
| Euro |
|
1.61 |
|
1.63 |
|
|
This arises where a business unit makes actual sales and purchases
in a currency other than its functional currency. Transaction exposure
also arises on the remittance from overseas of dividends or surplus
funds. The Group's policy is to match transaction exposure where
possible, and hedge remaining transactions as soon as they are committed,
by using foreign currency contracts and similar instruments.
Surplus funds are placed for short periods in investments that
carry low credit risk and are readily realisable in major currencies.
The Group's policy is to fix interest rates for a significant
portion of the debt (73% as at 31 December 2001). Where project
finance is utilised, our policy is to align the maturity of the
debt with the contractual terms of the customer off-take agreement.
Where appropriate, the Group will fix interest rates using forward
rate or interest rate swap agreements. Significant interest rate
management programmes and instruments require specific approval
of the Board.
The Group's policy is to manage its credit exposure to trading
and financial counterparties within clearly defined limits. Energy
trading activities are strictly monitored and controlled through
delegated authorities and procedures which include specific criteria
for the management of counterparty credit exposures in each of our
key regions. In addition, Group treasury manages the Group-wide
counterparty credit exposure on a consolidated basis. Financial
counterparty credit exposure is limited to relationship banks and
commercial paper with strong investment grade credit ratings - credit
exposure is regularly monitored by Group treasury.
|
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