Chairman’s statement

growth is a key strategic
focus for the business


Your Company has once again delivered a good performance. In 2007 profit from operations* was up 17% to £904 million, earnings per share* (EPS) increased by 21% from 22.4p to 27.1p, and free cash flow also improved strongly by 43% to £653 million.

This overall increase in profit from operations was principally driven by improved results from our European and North American regions. Our European business delivered a particularly strong performance with a £124 million increase in profit from operations to £574 million in 2007. The key driver in this region was the UK where profit from operations benefited from the forward contracting strategy that we put in place during 2006. In North America, a first full year contribution from Coleto Creek in Texas, together with enhanced capacity payments in New England were key in driving profit from operations up by £35 million to
£136 million in 2007. Although we had a challenging year in Australia, mainly due to the very severe drought, we expect to achieve improved margins in 2008, as power prices recover. Our long-term contracted plants in Asia and the Middle East continue to perform well with growth in profit from operations through good operational performance and a contribution from new assets.

We grew our generation portfolio during 2007 both through acquisitions and greenfield development. The most significant expansion was in wind generation where we acquired 660 MW of operational capacity and 55 MW under construction, located in Italy, Germany and the Netherlands. Together with existing wind power assets our total wind portfolio now comprises 1,199 MW in operation.

Profitable growth remains a key strategic focus for International Power. Tightening power supply driven by the need to replace old capacity and a growing demand for power in many of our markets presents us with multiple greenfield and acquisition opportunities in both our existing and new markets. I am pleased to report that our experience, proven track record and healthy balance sheet place us in a good position to deliver further growth in the future.

In October 2007, the Board introduced the payment of an interim dividend of 2.77 pence per Ordinary Share. Interim dividends will be calculated as a fixed percentage (35%) of the previous year’s full year dividend. The Board is proposing a final dividend of 7.39 pence per share for the year which, including the interim dividend, will take the total for 2007 to 10.16 pence per share. This represents an EPS pay-out ratio of 37.5%, up from 35% last year. Our dividend policy remains to progressively grow the dividend to an EPS pay-out ratio of 40%.

I would like to thank Adri Baan who, having served on the Board for five years, retired on
31 December 2007. During this time he chaired the Remuneration Committee and made a valuable contribution to the growth of the business. John Roberts now takes over from Adri as Chairman of the Remuneration Committee.

In June 2007 Alan Murray joined the Company as a Non-Executive Director. Alan, who has a finance background, was latterly CEO of Hanson plc and is now on the Managing Board of Heidelberg Cement AG. He has taken over as Chairman of the Audit Committee following the completion of the 2007 accounts.

During 2007 we reviewed our US listing. The US corporate governance regulatory requirements, following the Sarbanes-Oxley Act, involved the introduction of an unreasonably burdensome and expensive administrative environment across the Group. As less than 1% of the traded volume of our shares occurred in New York, we decided in June 2007 to deregister and delist from the SEC and NYSE respectively. Prior to deregistering, we received an unqualified opinion from KPMG that we had achieved compliance with the requirements of section 404 of the Sarbanes-Oxley Act in relation to our US reporting for the 2006 financial year. The Board remains confident that a proper control framework is in place across the Group.

Measures to control climate change and the protection of the environment continue to affect our industry and we expect them to do so for the foreseeable future. Throughout this report you will read about our approach towards these issues. They range from investing in renewables businesses to improving the carbon efficiency of existing assets and investing human resources and capital into upcoming renewable technologies, all with the aim of protecting and increasing shareholder value.

The Board has also established a new Health, Safety and Environment (HS&E) Committee. The Committee is chaired by Struan Robertson and comprises one other Non-Executive Director and the CEO. The Committee, which started to operate from January 2008, will review the Group’s HS&E policies, objectives and performance.

Last year, I visited a number of sites including our Coleto Creek coal fired plant in Texas, the Levanto wind business in Germany and, with the whole Board, the Shuweihat CCGT and desalination plant in the UAE. Once again, as with our other plants around the world, I was highly impressed by the commitment of the staff at our sites. It is only through the efforts of all our employees that we are able to develop the Company and enhance its performance. Therefore, on behalf of both the Board and shareholders, I am pleased to acknowledge their contribution and to thank them here for all their hard work as we continue to find ways to grow your business.


* All references to profit from operations and earnings per share in the Chairman’s statement are before exceptional items and specific IAS 39 mark to market movements.

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Sir Neville Simms - Chairman
Sir Neville Simms
Chairman