Interim Report for the Six Months ended 30 June 2010
Full announcement including financials in PDF format.
(London – 10 August 2010) International Power today announces its results for the six months ended 30 June 2010 and reports on key developments to date.
Sir Neville Simms, Chairman of International Power, said: “I am pleased to report that the business has performed well during the first half of the year. Underlying EPS* after adjusting for the sale of the Czech business is up 7% driven by good operational performance across the portfolio and a significantly improved contribution from Rugeley. The Board is pleased to announce an interim dividend of 4.39 pence. Overall the business continues to perform in line with our expectations, is generating good free cash flow and our financial position remains strong.”
Financial highlights - excluding exceptional items and specific IAS 39 mark to market movements*
- Profit from operations of £524 million (2009: £550 million) – down 5% (down 9% at constant currency)
- EPS of 14.1 pence (2009: 15.4 pence) – down 8% (down 14% at constant currency)
- After adjusting for the sale of the Czech business, underlying profit from operations at constant currency is up 2% and underlying EPS at constant currency is up 7%
- Free cash flow** of £398 million (2009: £326 million) – up 22%
- Interim dividend of 4.39 pence per share (2009: 4.25 pence) – up 3%
- Issued €250 million senior unsecured notes, due 2017
- Net debt at £4,835 million (31 December 2009: £5,059 million) – down 4%
Profit from operations*
| |
Six months ended
30 June |
Year ended 31 December |
|
| |
2010 |
2009
(restated) |
2009
(restated) |
|
| |
£m |
£m |
£m |
|
|
|
|
|
|
| North America |
49 |
58 |
134 |
|
| Europe |
265 |
299 |
647 |
|
| Middle East |
49 |
41 |
85 |
|
| Australia |
133 |
120 |
233 |
|
| Asia |
53 |
54 |
101 |
|
|
| Regional total |
549 |
572 |
1,200 |
|
| Corporate costs |
(25) |
(22) |
(52) |
|
|
| Profit from operations |
524 |
550 |
1,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial highlights - including exceptional items and specific IAS 39 mark to market movements
- Profit from operations of £443 million (2009: £799 million)
- EPS of 13.1 pence (2009: 25.9 pence)
Notes:
| * |
Excluding exceptional items and specific IAS 39 mark to market movements. For analysis and explanation of exceptional items and specific IAS 39 mark to market movements, please see notes 1 and 4 to the interim financial statements. |
| ** |
Free cash flow is set out in the consolidated statement of cash flows on pages 17 and 18. |
All reference to financial performance in this commentary excludes the impact of exceptional items and specific IAS 39 mark to market movements (unless stated otherwise).
Following the Group’s adoption of IFRIC 12 – Service Concession Arrangements, following its endorsement by the European Union, the comparatives for the six months ended 30 June 2009 and the year ended 31 December 2009 have been restated. The results for the six months ended 30 June 2009 have also been restated for the change in accounting policy relating to retirement benefit obligations, which was reflected in the Group’s consolidated financial statements for the year ended 31 December 2009 (refer to notes 1 and 5).
North America
Profit from operations in North America decreased 16% to £49 million compared to £58 million for the same period last year (down 14% at constant currency). The reduction in profit from operations was primarily due to a major planned outage and a lower write back of fair value provisions at Coleto Creek. Our peaking plants delivered an improved contribution reflecting higher capacity payments, and the wind assets in Canada, which were acquired in October 2009, made a first-time contribution. Our contracted assets in the region, EcoEléctrica and Oyster Creek, operated well and delivered a good financial performance.
In ERCOT, market conditions remain weak. The South Zone, where our Hays plant is located, experienced reduced congestion and lower pricing following some capacity additions. Consequently, the achieved spark spread at Hays was down at US$10/MWh (H1 2009: US$13/MWh), at a load factor of 30% (H1 2009: 55%). Midlothian achieved a spark spread of US$8/MWh, down from US$11/MWh in the first half of 2009, and a load factor of 20% compared to 30% for the same period last year. For the full year, we expect Hays to run at a load factor of 35% and Midlothian at 25%. We have forward contracted 60% of the expected output of these plants for 2010. A planned reduction in operating costs should help offset some of the fall in the 2010 expected spark spreads at Hays and Midlothian.
In New England, Bellingham and Blackstone achieved a spark spread of US$28/MWh (H1 2009: US$32/MWh) at a higher load factor of 30%, compared to 20% in 2009, due to warmer weather particularly in May and June. Earnings in New England continue to be underpinned by capacity payments under the Forward Capacity Market. For 2010 we have forward contracted 80% of our expected output in New England.
Coleto Creek achieved an increased dark spread of US$33/MWh (H1 2009: US$26/MWh), but at a reduced load factor of 65% (H1 2009: 95%) as the plant underwent a major planned outage and successfully completed an upgrade to the steam turbine, improving output by 10MW and heat rate by 2%. Coleto Creek’s full-year results in 2009 benefited from a £30 million non-cash write back of fair value provisions made against power contracts in place at acquisition, and there is no material write back in 2010. For 2010 we expect a load factor of 80% and have forward contracted 95% of expected output.
The peaking plants in PJM and MISO delivered an improved contribution reflecting an increase in capacity payments during the period. The capacity price for the period June 2013 to May 2014 cleared at an improved price of US$27.73/MW-day (compared to US$16.46/MW-day for the previous period) during a capacity auction held in May. This price reflects significant demand side response and a one-year delay to an expected transmission line that will increase transmission capacity from west PJM, where our assets are located, to high demand areas in east PJM.
In Canada, construction has been completed on the 40MW Harrow project, located in Ontario. In May, International Power announced that it has signed power purchase agreements for 76MW of new wind generation capacity under the Ontario Transmission Authority’s Feed-in Tariff programme. The projects are expected to commence operation in 2011. Once operational, the output from this capacity will be sold under a 20-year feed-in tariff to the Ontario Power Authority.
Europe
Profit from operations in Europe decreased 11% to £265 million from £299 million in the same period for 2009 (down 12% at constant currency). Adjusting for the sale of the Czech business, profit from operations was up 10%. Performance at Rugeley improved significantly, however this was partially offset by an expected reduction in contribution from First Hydro in the UK. Our contracted plants in Iberia and Turkey operated well.
Rugeley in the UK, where the FGD plant was commissioned in 2009, delivered an increased contribution achieving a dark spread of £58/MWh during the period (H1 2009: £13/MWh) at a relatively low load factor of 35% (H1 2009: 75%). Deeside achieved a spark spread of £12/MWh (H1 2009: £19/MWh), at an increased load factor of 85%, compared to 50% in the first half of 2009 when the plant had a planned C-inspection. Saltend achieved a consistent spark spread of £24/MWh at a slightly higher load factor of 85% (H1 2009: 80%), due to its highly contracted position, which was locked-in during the high power price environment in 2008. For 2010 we have forward contracted 85% of our expected output at Deeside, and 95% at Rugeley and Saltend.
In the UK, wholesale prices have been affected by reduced volatility and new CCGT plants coming online. These weaker conditions impact First Hydro’s balancing mechanism and trading revenue streams and as a result, First Hydro’s performance was down significantly on the same period in 2009, in line with our expectations. The plant has maintained its ancillary service volumes, and prices in the contracted reserve markets showed some improvement.
At ISAB in Italy the second unit returned to production in May. In addition, the plant benefited from a full settlement of property damage and business interruption insurance associated with the 2008 incident.
Construction of the 830MW Elecgas plant in Portugal and the 420MW T-Power plant in Belgium continues to make good progress. These two gas-fired projects are both on schedule to reach commercial operation in the first half of 2011.
Middle East
In the Middle East, profit from operations increased 20% to £49 million, up from £41 million last year (up 22% at constant currency) reflecting a good operational performance from all the assets in the region, with high availability levels.
At Fujairah F2, in the UAE, construction of the 2,000MW, 130MIGD plant is progressing and the project is expected to reach full commercial operation during 2010. The plant is being commissioned in three stages and, following a short delay, is expected to be fully commissioned in the second half of this year.
Australia
Profit from operations was up 11% at £133 million compared to £120 million in the previous year (down 11% at constant currency). Improved performances at Loy Yang B and Simply Energy, where customer numbers were higher with improved retail margins, were offset by a lower contribution from Hazelwood due to planned major outages on two units.
Hazelwood’s first half load factor was 80% compared to 85% in the first half of 2009, with an achieved price of A$48/MWh (H1 2009: A$46/MWh). For the full year, we have forward contracted 70% of Hazelwood’s expected output (at a load factor of 80%) and expect to achieve an average price of A$43/MWh.
In January 2010, the total existing non-recourse debt of A$742 million of Hazelwood power station was restructured. The previous two-tranche structure (comprising A$445 million Tranche B, maturing in February 2010, and A$297 million Tranche A maturing in 2014) was merged into a single facility with a maturity date of 30 June 2012 and a margin of 400 basis points.
In May the Australian Government announced a delay to the proposed Carbon Pollution Reduction Scheme (CPRS) until after the end of the first Kyoto Protocol Commitment Period (end of 2012).
Construction of the additional 24MW peaking unit at Port Lincoln (Synergen) in South Australia is progressing well and the unit is expected to be in operation in the third quarter of 2010 taking the total capacity of the plant to 72MW. The plant is now operating under a new ten-year ancillary services agreement providing transmission support to the Port Lincoln area.
Asia
Profit from operations in Asia was down 2% at £53 million compared to £54 million in 2009 (up 2% at constant currency). Our assets in the region continued to deliver a strong operational performance and expect to benefit from availability bonuses this year.
Construction of the 815MW super-critical coal-fired Paiton 3 plant in Indonesia and the 110MW TNP2 gas-fired cogeneration plant in Thailand is progressing well, and both plants are on schedule to reach commercial operation by the end of 2012.
Corporate costs
Corporate costs at £25 million have increased by £3 million compared to last year (2009: £22 million), primarily due to a one-off income item in 2009 and additional project development costs in 2010.
Interest
Net interest expense at £191 million is £25 million lower than 2009. The principal driver of the reduction is the pay down of US$769 million of debt secured on five US merchant plants, located in Texas and New England, in December 2009.
Foreign exchange
The impact of the weakening of sterling on the results of our overseas operations, compared to the same period in 2009, is an increase in EPS of 0.8 pence. The impact relates primarily to the translation of the profits of Australian dollar denominated operations.
Tax
The Group tax charge has increased by £5 million to £64 million (2009: £59 million). The effective rate of tax used in preparing these results is 22% (2009: 23%). As in 2009, the tax rate has benefited from the resolution of some historic tax issues.
Exceptional items and specific IAS 39 mark to market movements
Exceptional items after tax amount to a loss of £15 million (2009: £nil) representing an impairment to the carrying value of the Derwent plant due to the end of its steam offtake contract in 2011.
The specific IAS 39 mark to market movements reported in the period amount to a net loss of £33 million before tax (2009: gain of £240 million). £57 million of the loss relates to power and gas contracts, principally arising from settlements in the period (2009: gain of £243 million which primarily related to a reduction in forward prices in our merchant market regions), offset principally by mark to market gains of £36 million (2009: net loss of £11 million) relating to the convertible bonds.
Tax on total specific IAS 39 mark to market movements during the year was a credit of £9 million (2009: charge of £51 million).
Cash Flow
A summary of the Group’s cash flow and a reconciliation to net debt is set out below:
|
Six months ended
30 June |
|
Year ended
31 December |
|
2010 |
2009
(restated) |
|
2009
(restated) |
|
£m |
£m |
|
£m |
|
|
|
|
|
| Profit for the period |
230 |
464 |
|
1,132 |
| Depreciation and amortisation |
227 |
173 |
|
374 |
| Non-cash items and other movements (i) |
192 |
(155) |
|
(327) |
| Dividends from joint ventures and associates |
39 |
21 |
|
146 |
| Capital expenditure – maintenance |
(72) |
(72) |
|
(148) |
| Sale of property, plant and equipment |
- |
2 |
|
1 |
| Net (purchase)/sale of intangible assets |
(23) |
42 |
|
47 |
| Movement in working capital |
49 |
83 |
|
101 |
| Tax and net interest paid |
(244) |
(232) |
|
(535) |
|
|
|
|
|
|
|
|
|
|
|
| Free cash flow |
398 |
326 |
|
791 |
| Australian stamp duty - exceptional |
- |
- |
|
(6) |
| Capital expenditure – growth |
(69) |
(43) |
|
(115) |
| Investments in (net of returns from) joint ventures, associates and investments |
(16) |
(13) |
|
(18) |
| Acquisitions |
(3) |
(5) |
|
(76) |
| Disposals |
(7) |
- |
|
638 |
| Dividends paid |
(126) |
- |
|
(195) |
| Proceeds from share issue |
2 |
2 |
|
3 |
| Net payments to non-controlling interests |
(6) |
(78) |
|
(110) |
| Other movements in debt |
(3) |
(17) |
|
(36) |
|
|
|
|
|
|
|
|
|
|
|
| Decrease in net debt |
170 |
172 |
|
876 |
|
|
|
|
|
| Opening net debt |
(5,059) |
(6,318) |
|
(6,318) |
| Net debt reclassified as assets and liabilities held for sale |
- |
156 |
|
- |
| Net debt on acquisition of subsidiaries |
- |
- |
|
(49) |
| Net debt on disposal of subsidiaries |
- |
- |
|
121 |
| Effect of foreign exchange thereon |
54 |
569 |
|
311 |
|
|
|
|
|
|
|
|
|
|
|
| Closing net debt |
(4,835) |
(5,421) |
|
(5,059) |
|
|
|
|
|
|
|
|
|
|
|
|
| (i) |
Non-cash items and other movements are set out in the consolidated statement of cash flows. They include income statement charges for interest, tax, specific IAS 39 mark to market movements and the share of profit of joint ventures and associates. |
Free cash flow for the first six months of 2010 at £398 million is £72 million higher than for the first half of 2009. Most of this improvement reflects the settlement of hedges on the UK portfolio. Dividends from joint ventures and associates are up £18 million between years, while tax paid and interest paid have also increased and decreased respectively. Growth capex is £26 million higher in 2010, principally due to the refitting of the Maestrale wind farms in Italy.
Summary statement of financial position
The Group’s net assets can be analysed as follows:
| |
|
As at
30 June
2010 |
|
As at
30 June
2009 (restated) |
|
As at
31 December
2009 (restated) |
|
|
£m |
|
£m |
|
£m |
|
|
|
|
|
|
|
| Goodwill and intangibles |
|
1,039 |
|
1,008 |
|
1,053 |
| Property, plant and equipment |
|
6,988 |
|
6,652 |
|
6,959 |
| Investments |
|
1,689 |
|
1,533 |
|
1,627 |
| Long-term receivables and others |
|
1,638 |
|
1,712 |
|
1,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-current assets |
|
11,354 |
|
10,905 |
|
11,388 |
|
|
|
|
|
|
|
| Net current (liabilities)/assets excluding net debt items |
|
(187) |
|
96 |
|
(131) |
| Non-current liabilities excluding net debt items |
|
(1,441) |
|
(1,525) |
|
(1,437) |
| Net debt |
|
(4,835) |
|
(5,421) |
|
(5,059) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net assets |
|
4,891 |
|
4,055 |
|
4,761 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Gearing |
|
99% |
|
134% |
|
106% |
| Debt capitalisation |
|
50% |
|
57% |
|
52% |
|
|
| |
|
|
|
|
|
|
| Net debt – JVs/Associates |
|
(1,919) |
|
(1,636) |
|
(1,684) |
|
|
|
|
|
|
|
|
The decrease in goodwill and intangibles assets since 31 December 2009 mostly reflects the strengthening of sterling against the euro. The increase in other non-current assets also reflects this foreign exchange movement which is more than offset by the impact of a weakening of sterling against the US dollar and a reduction in derivative financial assets.
The increase in liabilities excluding net debt items since December 2009 comprises a number of offsetting working capital movements. Net debt has fallen from £5,059 million to £4,835 million following strong cash generation by the business and the strengthening of sterling against the euro.
The Group remains in a robust financial position with strong free cash flow generation. At 30 June 2010 cash at the project level and corporate level amounts to £709 million and £737 million respectively. Debt at the project level and corporate level is £5,268 million and £1,013 million respectively. The increase in corporate level debt, rising from £845 million at 31 December 2009 to £1,013 million predominantly reflects the issue of the €250 million Senior Notes. As a consequence of the reduction in net debt, debt capitalisation has declined to 50% from 52%.
Dividend
The Board is pleased to announce an interim dividend of 4.39 pence per ordinary share (which is calculated as 35% of the previous year’s full-year dividend). This will be paid to shareholders registered on the Company share register on 1 October 2010, with payment being made on 28 October 2010.
Outlook
The business has performed well in the first half of 2010. Our merchant assets remain well positioned to capture value from any recovery or volatility in market conditions and our long-term contracted assets continue to operate in line with expectations. Overall, our outlook for the year remains unchanged from that stated in the 2009 preliminary results announcement.
For further information please contact:
Investor Contact:
Aarti Singhal
+44 (0)20 7320 8681 |
Media Contact:
Beth Akers
+44 (0)20 7320 8622 |
About International Power
International Power plc is a leading independent electricity generating company with 34,408MW gross (20,949MW net) in operation and 4,502MW gross (1,393MW net) under construction. International Power has power plants in operation or under construction in Australia, the United States of America, the United Kingdom, Belgium, Canada, France, Germany, Italy, the Netherlands, Portugal, Spain, Turkey, Bahrain, Oman, Qatar, Saudi Arabia, the UAE, Indonesia, Pakistan, Puerto Rico and Thailand. International Power is listed on the London Stock Exchange with ticker symbol IPR. Company website: www.ipplc.com