1 Preliminary Results Year to 31 December 2003. 2 Sir Neville Simms Chairman.
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Transcript of 1 Preliminary Results Year to 31 December 2003. 2 Sir Neville Simms Chairman.
Group overview
2003 EPS in line with earnings guidance
Earnings underpinned by good performance in all regions outside the US
Impairment in US at £404m is the prudent approach
Free cash flow positive Balance sheet liquidity
2003 EPS in line with earnings guidance
Earnings underpinned by good performance in all regions outside the US
Impairment in US at £404m is the prudent approach
Free cash flow positive Balance sheet liquidity
2003 2002
EPS
PBIT
Free cash flow*
15.5p
£388m
£252m
* Free cash flow is defined as operating cash flow, minus interest, tax and maintenance capex, but before growth capex
10.2 p
£285m
£121m
All numbers are before exceptional items
Key highlights 2003
Comprehensive review of options for US business underway
Pre-emptive discussions with bank group to renegotiate non-recourse project debt - $900m
Focussed cost reduction plan implemented– $12m saving in cash operating costs– creation of ‘in house’ outage teams
Hays mothballed in early 2004 for indefinite period
Alstom turbine performance on track– LD ‘buydowns’ £56m in 2003
Comprehensive review of options for US business underway
Pre-emptive discussions with bank group to renegotiate non-recourse project debt - $900m
Focussed cost reduction plan implemented– $12m saving in cash operating costs– creation of ‘in house’ outage teams
Hays mothballed in early 2004 for indefinite period
Alstom turbine performance on track– LD ‘buydowns’ £56m in 2003
ERCOT market background
Demand (peak)
Capacity
Reserve margin
Demand growth (2.8%)
In construction
Mothballed / retired (inc Hays)
Controlled by banks / distressed
GW > 30 years
Distressed GW > 30 years
60.2
81.2
35%
1.7
2.4
8.7*
32.7
22.6
7.3
GW
Demand / Supply
$1+ $2+ $4
Gas price$perBTUm
North Zonepremium
$/MWh
* of which 1.9 Reliability Must Run CCGT plant- 7200 heat rate- calendar average spreads- south zone prices
8
6
4
2
0 2002actual
2003actual
2004 Feb 04
forward curve
$MWh
Market spark spreads(peak hours)
3.15 5.30 5.00 - 5.50
+
+
ERCOT - market update
North Zone redefined - positive for Midlothian– planned move to nodal pricing (a refined
zonal system) in 2006, a further positive for Midlothian
Transparent market mechanism required Plant retirement largest single variable -
particularly older high heat rate plant– 8.7 GW mothballed to date - of which 1.9 GW
Reliability Must Run Demand growth 3% pa
North Zone redefined - positive for Midlothian– planned move to nodal pricing (a refined
zonal system) in 2006, a further positive for Midlothian
Transparent market mechanism required Plant retirement largest single variable -
particularly older high heat rate plant– 8.7 GW mothballed to date - of which 1.9 GW
Reliability Must Run Demand growth 3% pa
Key factors for market recoveryKey factors for market recovery
NEPOOL market background
Demand (peak)
Capacity
Reserve margin
Demand growth (1.5%)
In construction
Mothballed / retired
Controlled by banks / distressed
GW > 30 years
Distressed GW > 30 years
25.4
31.4
24%
0.4
0.4
1.1
15.0
10.7
4.8
GW
Market spark spreads*(peak hours)Demand / Supply
15
12
9
6
3
02002
actual2003
actual2004
Feb 04forward curve
Gas price$perBTUm
CCGT plant- 7200 heat rate- calendar average spreads- excludes ICAP / UCAP
$MWh
$3.70 $6.80 $6.50 -7.00
*
NEPOOL - market update
Financial distress of incumbents (40%+) plus low asset prices = opportunities for market consolidation
Age of plant: 30% over 30 years old - key driver for retirement
Planned transmission links into Connecticut (higher prices due to congestion) should help Blackstone / Bellingham / Milford
Environmental pressures - our assets well positioned
Financial distress of incumbents (40%+) plus low asset prices = opportunities for market consolidation
Age of plant: 30% over 30 years old - key driver for retirement
Planned transmission links into Connecticut (higher prices due to congestion) should help Blackstone / Bellingham / Milford
Environmental pressures - our assets well positioned
Key factors for market recoveryKey factors for market recovery
US strategy
US debt negotiations the clear priority– comprehensive review of options– long term solution required
Operate and trade current portfolio to maximum efficiency
Growth opportunities– low asset prices in ERCOT and NEPOOL
create merchant opportunities– contracted assets
US debt negotiations the clear priority– comprehensive review of options– long term solution required
Operate and trade current portfolio to maximum efficiency
Growth opportunities– low asset prices in ERCOT and NEPOOL
create merchant opportunities– contracted assets
Key highlights 2003
Record financial performance at EOP– power, district heating both strong performers -
power forward contracted through 2004
Consistent high availability at Pego (Portugal) and Uni-Mar (Turkey) ensured strong financial results
Flexible and responsive UK operations delivered improved H2 performance– successful and quick demothballing of Deeside
250 MW unit
Record financial performance at EOP– power, district heating both strong performers -
power forward contracted through 2004
Consistent high availability at Pego (Portugal) and Uni-Mar (Turkey) ensured strong financial results
Flexible and responsive UK operations delivered improved H2 performance– successful and quick demothballing of Deeside
250 MW unit
England & Wales market environment
Demand (peak)
Capacity
Reserve margin
Demand growth
In construction
Mothballed / retired
Controlled by bank / distressed
GW > 30 years
Distressed GW > 30 years
55.9
68.0
22%
1.5%
1.4
2.4
17.5
23.2
5.9
GW
Demand / Supply
(1)
(2)
(3)
(3)
(1)
(2)
(3)
NGC Jan 2004 Seven Year Statement UpdateIncludes only Spalding and Immingham CHPIncludes High Marnham and Drakelow.
25
20
15
10
5
02002 2003 2004
£MWh
8
6
4
2
02002 2003 2004
£MWh
Gas price
Baseload power
Coal price
Baseload Spark Spreads
Baseload Power and Fuel Prices
Gas
Coal
UK 2005 forward power prices currently £4 MWh up on 2004– starting to reflect cost of carbon
Carbon allocations announced:– UK targets higher CO2 emission reductions than EU – power industry bears disproportionate reduction - lobbying
continues– gas plants advantaged vs coal - positive for Deeside; uncertainty
for Rugeley Deeside and Rugeley allocations represent load factors of 65% and
47% respectively Carbon allocation and CO2 prices also drive FGD decisions at coal
fired plants– opt in LCPD = capex– opt out LCPD = lower load factor– decision by June 2004
European assets:– EOP has FGD installed - well positioned– PEGO expects to fit FGD (capex cost recovered through PPA)
UK 2005 forward power prices currently £4 MWh up on 2004– starting to reflect cost of carbon
Carbon allocations announced:– UK targets higher CO2 emission reductions than EU – power industry bears disproportionate reduction - lobbying
continues– gas plants advantaged vs coal - positive for Deeside; uncertainty
for Rugeley Deeside and Rugeley allocations represent load factors of 65% and
47% respectively Carbon allocation and CO2 prices also drive FGD decisions at coal
fired plants– opt in LCPD = capex– opt out LCPD = lower load factor– decision by June 2004
European assets:– EOP has FGD installed - well positioned– PEGO expects to fit FGD (capex cost recovered through PPA)
Carbon update
European strategy
Support the drive for consolidation in UK power generation
Opportunities in liberalising markets where we already have a presence– Portugal– Czech Republic– Turkey
Support the drive for consolidation in UK power generation
Opportunities in liberalising markets where we already have a presence– Portugal– Czech Republic– Turkey
Middle East - highlights in 2003 Umm Al Nar - Abu Dhabi
– 2,200 MW, 162 MIGD - brownfield project– bid, won and financed $2.1 bn project– partners - TEPCO and Mitsui– 23 year PPA with ADWEC
Saudi Aramco - Saudi Arabia– 1,075 MW, + steam - 4 plants - greenfield project– bid, won and financed $700m project– partner - Saudi Oger– 20 year ECAs with Saudi Aramco
Shuweihat - Abu Dhabi– 1,500 MW, 100 MIGD - greenfield project– successfully commissioned 2 gas turbines and
desalination unit ahead of schedule– 20 year PPA with ADWEC
Strong operational and customer focus to ensure assets perform to contract
Strong growth region for IPR
Umm Al Nar - Abu Dhabi– 2,200 MW, 162 MIGD - brownfield project– bid, won and financed $2.1 bn project– partners - TEPCO and Mitsui– 23 year PPA with ADWEC
Saudi Aramco - Saudi Arabia– 1,075 MW, + steam - 4 plants - greenfield project– bid, won and financed $700m project– partner - Saudi Oger– 20 year ECAs with Saudi Aramco
Shuweihat - Abu Dhabi– 1,500 MW, 100 MIGD - greenfield project– successfully commissioned 2 gas turbines and
desalination unit ahead of schedule– 20 year PPA with ADWEC
Strong operational and customer focus to ensure assets perform to contract
Strong growth region for IPR
Middle East strategy
Continue to grow with focus on contracted assets in Gulf states - power and water projects
Significant 2004 opportunities - over 4,000 MW+ desalination
Leverage our development, market, technical and partnership skills - key IPR advantages
Typical project profile– secure, high credit rated, sovereign backed offtakers– US$ denominated contracts– strong partners– significant non-recourse leverage– limited IPR investment - typically £50m - £75m per project
Continue to grow with focus on contracted assets in Gulf states - power and water projects
Significant 2004 opportunities - over 4,000 MW+ desalination
Leverage our development, market, technical and partnership skills - key IPR advantages
Typical project profile– secure, high credit rated, sovereign backed offtakers– US$ denominated contracts– strong partners– significant non-recourse leverage– limited IPR investment - typically £50m - £75m per project
Australia - achievements 2003
Strong forward contracted position in 2003 underpinned earnings
SEA Gas 687km pipeline– construction completed 1 January 2004 - on time,
and on budget Hazelwood mine
– first coal delivered from new mine extension in early February 04
– long term security of supply Canunda wind farm (46 MW)
– permitted, construction starts Q2– 10 year offtake with AGL– commercial operation planned Q2 2005
Strong forward contracted position in 2003 underpinned earnings
SEA Gas 687km pipeline– construction completed 1 January 2004 - on time,
and on budget Hazelwood mine
– first coal delivered from new mine extension in early February 04
– long term security of supply Canunda wind farm (46 MW)
– permitted, construction starts Q2– 10 year offtake with AGL– commercial operation planned Q2 2005
Australia market background
Demand GW (peak)
Capacity GW *
Reserve margin %
Demand growth
Demand GW (peak)
Capacity GW *
Reserve margin %
Demand growth
VictoriaVictoria S AustraliaS Australia
2.8
3.7
32%
3.0%
Reserve margin tightening in Victoria and SA but not yet reflected in forward curve
2004 and 2005 forward prices show progressive recovery from 2003
– but not yet to 2001 and 2002 levels
8.5
9.5
12%
3.0%
* Includes average interconnector availability of 50%
Australia strategy
Scale - largest privately owned generator
Optimise forward contracted position
Preserve position as low cost producer in both Victoria and South Australia
Growth through acquisition– principal targets are contracted assets
Scale - largest privately owned generator
Optimise forward contracted position
Preserve position as low cost producer in both Victoria and South Australia
Growth through acquisition– principal targets are contracted assets
Rest of the World
Long term contracted assets – solid earnings and cash flow
- HUBCO (Pakistan) - KAPCO (Pakistan) - Malakoff (Malaysia) - TNP (Thailand)
Customer focus - all contractual agreements remain firm
Monetise investments when appropriate– 5% HUBCO in 2003 realised £21m cash
Long term contracted assets – solid earnings and cash flow
- HUBCO (Pakistan) - KAPCO (Pakistan) - Malakoff (Malaysia) - TNP (Thailand)
Customer focus - all contractual agreements remain firm
Monetise investments when appropriate– 5% HUBCO in 2003 realised £21m cash
Group Profit and Loss Account
1,129 1,273 Turnover - gross
256 174 PBT
Year ended 31 December
15.5p
173
(6)31%
(77)
2.6x
(132)
388
2002
(7)Minority interest30%Effective tax rate
2.9xInterest cover
10.2pEPS (basic)
113 Retained profit
(54)Tax
(111)Interest
285 PBIT
2003£m
Note: All numbers are pre-exceptional
Exceptional items
- (16)Capitalised financing charges write off
- (404)US impairment
- 3 China exit
- 7 Czech Republic (sale of shares)
-
-
17
35
HUBCO - sale of share
- impairment reversal
Year ended 31 December
(60)
1
(61)
42
(58)
(45)
2002
(332)
26
(358)
-
-
-
2003
Tax effect
Net
Total
KAPCO dividend
Rugeley impairment
Deeside impairment
£m
US Impairment
Key assumptions:
Whole life cash flow used
Current forward curve in short term
New entrant pricing assumed at market equilibrium for long term
Discounted at WACC of the US business
Key assumptions:
Whole life cash flow used
Current forward curve in short term
New entrant pricing assumed at market equilibrium for long term
Discounted at WACC of the US business
265 600 Current carrying valueUS installed merchant capacity is 4,050 MW
(178)
443
$/kW
(404)Impairment
1,004 Book value of US assets pre impairment
£m
Geographic analysisTurnover and PBIT
Year ended 31 December
417 1,129313 1,273Regional total
* Pre-exceptional items.
Pakistan is now included in Rest of the World
388 1,129285 1,273Total
(29)-(28)-Corporate costs
108 14884 128Rest of the World
101 226101 224Australia
9 -23 33Middle East
100 440103 474Europe
99 3152 414North America
PBIT*TurnoverPBIT*Turnover£m20022003
Geographic analysisTurnover and PBIT
Year ended 31 December
417 1,129313 1,273Regional total
388 1,129285 1,273Total
(29)-(28)-Corporate costs
108 14884 128Rest of the World
101 226101 224Australia
9 -23 33Middle East
100 440103 474Europe
99 3152 414North America
PBIT*TurnoverPBIT*Turnover£m20022003
* Pre-exceptional items.
Pakistan is now included in Rest of the World
Geographic analysisTurnover and PBIT
Year ended 31 December
417 1,129313 1,273Regional total
388 1,129285 1,273Total
(29)-(28)-Corporate costs
108 14884 128Rest of the World
101 226101 224Australia
9 -23 33Middle East
100 440103 474Europe
99 3152 414North America
PBIT*TurnoverPBIT*Turnover£m20022003
* Pre-exceptional items.
Pakistan is now included in Rest of the World
Geographic analysisTurnover and PBIT
Year ended 31 December
417 1,129313 1,273Regional total
388 1,129285 1,273Total
(29)-(28)-Corporate costs
108 14884 128Rest of the World
101 226101 224Australia
9 -23 33Middle East
100 440103 474Europe
99 3152 414North America
PBIT*TurnoverPBIT*Turnover£m20022003
* Pre-exceptional items.
Pakistan is now included in Rest of the World
Geographic analysisTurnover and PBIT
Year ended 31 December
417 1,129313 1,273Regional total
388 1,129285 1,273Total
(29)-(28)-Corporate costs
108 14884 128
101 226101 224Australia
9 -23 33Middle East
100 440103 474Europe
99 3152 414North America
PBIT*TurnoverPBIT*Turnover£m20022003
Rest of the World
* Pre-exceptional items.
Pakistan is now included in Rest of the World
Geographic analysisTurnover and PBIT
Year ended 31 December
417 1,129313 1,273Regional total
388 1,129285 1,273Total
(29)-(28)-Corporate costs
108 14884 128Rest of the World
101 226101 224Australia
9 -23 33Middle East
100 440103 474Europe
99 3152 414North America
PBIT*TurnoverPBIT*Turnover£m20022003
* Pre-exceptional items.
Pakistan is now included in Rest of the World
Geographic analysisTurnover and PBIT
Year ended 31 December
417 1,129313 1,273Regional total
388 1,129285 1,273Total
(29)-(28)-Corporate costs
108 14884 128
101 226101 224Australia
9 -23 33Middle East
100 440103 474Europe
99 3152 414North America
PBIT*TurnoverPBIT*Turnover£m20022003
Rest of the World
* Pre-exceptional items.
Pakistan is now included in Rest of the World
Group operating cash flow
42
(25)
-
-
Exceptional items
- KAPCO dividend
- Hazelwood refinancing
Year ended 31 December
252
(108)
(48)
391
115
276
2002
121 Free cash flow
(100)Interest and tax
(64)Capex - maintenance
285 Operating cash flow
101 Dividends – JV’s, associates and investments
184 Operating cash flow from subsidiaries
2003 £m
Group net cash flow
Year ended 31 December
(812)
(897)
85
75
-
(144)
-
(98)
252
2002
- Acquisitions and greenfield developments
(692)Closing external debt
(812)Opening external debt
120 Net cash flow
(35)Other (FX and share buy-back)
35 Disposal of investments
56 LD buy-downs
(57)Capex – growth
121 Free cash flow
2003£m
Balance sheet
31%31%Debt capitalisation
(504)(712)Associates and JVs net debt
As at 31 December
2,981 2,587
1,769 1,562 Net assets
2,474 2,049 Intangible & tangibles
507 538 Investments
46%44%Gearing
(812)(692)Net debt
(262)(243)Provisions and creditors > 1 year
(138)(90)Net current liabilities
Fixed assets
20022003£m
Hedging strategy
Foreign Exchange
Balance sheet– translation exposure mitigated by matching
currency profile of assets and debt
Profit and loss account– 2003 PBT at 2002 FX rates would decrease PBT by
£5m– 2003 PBT at $1.80 would decrease PBT by only £4m– transaction hedged on commitment (contractual)
Interest
Profit and loss account– target 40% to 75% of debt at fixed rate for medium
to long term
Foreign Exchange
Balance sheet– translation exposure mitigated by matching
currency profile of assets and debt
Profit and loss account– 2003 PBT at 2002 FX rates would decrease PBT by
£5m– 2003 PBT at $1.80 would decrease PBT by only £4m– transaction hedged on commitment (contractual)
Interest
Profit and loss account– target 40% to 75% of debt at fixed rate for medium
to long term
Financing accomplishments
US$1.8 billion Umm Al Nar financing
Issue of US$ 252 million senior convertible bonds
Rugeley restructuring
New US$450 million corporate revolver put in place
US$510 million, 17 year term Saudi Aramco financing
US$1.8 billion Umm Al Nar financing
Issue of US$ 252 million senior convertible bonds
Rugeley restructuring
New US$450 million corporate revolver put in place
US$510 million, 17 year term Saudi Aramco financing
SeptemberSeptember
JulyJuly
OctoberOctober
FebruaryFebruary
20032003
20042004
Net debt structure
(1,026)334(692)Total net debt
2015
2017
2007
2008/current
2012/13
2006*
2023
2005
n/a
Maturity
(712)
(110)
(271)
(198)
-
(52)
(81)
JV’s / Associates
non-recourse
off-balance sheet net
debt
(1,235)
(25)
(51)
(44)
(83)
(531)
(501)
-
-
-
209
Subsidiaries
-(1,235)
(25)
(51)
(44)
(83)
(531)
(501)
(200)
(138)
(62)
743
Total
- Europe
- Middle East
- RoW
(200)
-
-
-
(138)
(62)
534
IPR Corporate
Australia
UK
* Reported as current debt
US
Non recourse debt
Convertible bond (new)
Convertible bond (old)
Recourse debt
Cash + liquid resources
£m
In summary:
Low spark spreads in the US
US assets written down
Europe performed well
Highly contracted in all other regions
Cash flow positive
Strong corporate liquidity
Low spark spreads in the US
US assets written down
Europe performed well
Highly contracted in all other regions
Cash flow positive
Strong corporate liquidity
IPR’s strategy remains . . .
Focus on wholesale power generation - our core skill– plus complementary activities - desalination in ME and
SEA Gas pipeline
Strength and balance through geographic diversity - concentrated portfolio in 4 key regions; US, Europe, ME and Australia
Growth in core regions– contracted assets
- security of offtake and financial returns are the key priorities
– existing merchant markets - heavily discounted asset prices - diversity in merit order and / or fuel - scale
– acquisition and greenfield opportunities
Focus on wholesale power generation - our core skill– plus complementary activities - desalination in ME and
SEA Gas pipeline
Strength and balance through geographic diversity - concentrated portfolio in 4 key regions; US, Europe, ME and Australia
Growth in core regions– contracted assets
- security of offtake and financial returns are the key priorities
– existing merchant markets - heavily discounted asset prices - diversity in merit order and / or fuel - scale
– acquisition and greenfield opportunities
Outlook
Clear strategy
US restructuring number 1 priority
Growth opportunities in our core regions
Confirm 2004 earnings guidance of 7 - 9p EPS
Clear strategy
US restructuring number 1 priority
Growth opportunities in our core regions
Confirm 2004 earnings guidance of 7 - 9p EPS