International Power reports interim profits rise

4 September 2002 – UK Independent power generator International Power reported pre-tax profits up 51 per cent for the first six months of 2002 at à‚£229m ($ 358m) despite the turmoil and lack of confidence in the power sector following the collapse of Enron.

“This is a particularly good result given the challenging merchant energy environment. Our conservative approach has substantially shielded us from the financial issues affecting our sector.” said Sir Neville Simms, Chairman of International Power.

International Power was able to show profits up 64 per cent from its North American operation compared with the corresponding period last year which was attributable to the addition of new capacity and the receipt of compensation payments from Alstom (the prime contractor). The compensation payments principally relate to income lost during the period as a result of delays in the construction programme and subsequent unavailability of plant.

The company said that the lack of creditworthy trading counter-parties had led to a severe contraction in liquidity in the United States. This had affected key markets in the region (Texas and New England) and had made the execution of forward contracts difficult.

Operating profit in the Europe and Middle East region decreased 7 per cent to à‚£77m from à‚£83m in H1 2001. This was principally due the inclusion of earnings from UFG in the prior year numbers (this investment was sold in July 2001) and a decline in margins at Deeside. The acquisition of Rugeley and a success fee in respect of the, soon to be operational Shuweihat project did however offset most of these negative impacts. Profit after interest and tax was up from the first half of last year.

In Australia, operating profit in the region grew by 29 per cent to à‚£49m from à‚£38m in H1 2001, primarily due to increased profitability at Hazelwood (Victoria) and Pelican Point (South Australia). In the second quarter (start of Australian winter), both Victoria and South Australia experienced high levels of demand leading to increased wholesale prices.

Operating profit from International Power’s interests in the rest of the world increased to à‚£56m from à‚£11m in H1 2001. The key driver for this increase was the resumption of dividends (including the settlement of past receivables) from Kot Addu Power Company (KAPCO) in Pakistan. A gross dividend of à‚£41m has been received (the first since 1998), of which à‚£24m that related to the settlement of past receivables, has been treated as exceptional.

In its statement the company expressed confidence in being able to meet market expectations for the full year despite some weak markets which it attributed to its wide geographical spread. It took a cautious approach to prospects for 2003 and said that it did not expect any significant price recovery in Texas, New England or the UK and no acquisitions.

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