philip cox cfo, international power maximising returns through portfolio management morgan stanley...
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Philip CoxCFO, International Power
Maximising Returns ThroughPortfolio Management
Morgan StanleyEuropean Power & Utility SummitLondon, 9 October 2003
A leading independentpower generatorA leading independentpower generator
A world leading power generator with a global portfolio of high quality assets
A blend of contracted and merchant assets
Earnings underpinned by strong operating & free cash flow
A solid balance sheet and ready liquidity
Multiple opportunities for growth through acquisitions and greenfield developments
Operational excellence and positioned for growthOperational excellence and positioned for growth
Key strengthsKey strengths
Plant availability – 11,000 MW (net)
Fuel diversity – gas, coal, oil
Environmental and health & safety
Power & desalination
Trading in merchant markets– asset backed– tightly controlled proprietary trading– asset hedging approved by Local Risk
Committees - US, Australia, UK with participation of CEO / CFO / Head of Global Trading and Risk
PPA/tolling/offtake structuring
OperationsOperations
CommercialCommercial
Key strengthsKey strengths
Available liquidity for selected growth– Contracted assets– Merchant markets - scale in existing
markets
Liquidity / balance sheetLiquidity / balance sheet
Key strengthsKey strengths
Global portfolio: 10,990 MW (net) in operation; 610 MW (net) under construction
Australia
StateState NameName Net MWNet MW FuelFuelTexasTexasTexasMassachusettsMassachusettsMassachusettsGeorgia
2101,6501,100
160570570155
GasGasGasGasGasGas Gas
Oyster CreekMidlothianHaysMilfordBlackstoneBellinghamHartwell
NameCountry Net MW FuelPluak DaengThailand 110 GasMalakoffMalaysia 325 GasHub PowerPakistan 270 OilKot AdduPakistan 575 Gas
NameCountry Net MWFuelEOPDeesideRugeleyPegoMarmara
Czech RepublicUKUKPortugalTurkey
5805001,000270160
LigniteGasCoalCoalGas
NameCountry Net MW Fuel
ShuweihatAl Kamil
Umm Al NarAbu DhabiOman
Abu Dhabi300285
480GasGas
Gas
Europe
Rest of World
Middle East
North America
Interests in 28 power stations in 12 countries
Interests in 28 power stations in 12 countries
Geographic diversity and balanceGeographic diversity and balance
State Net MW FuelVictoriaS AustraliaS AustraliaSEA Gas Pipeline 680 km
1,470360485
LigniteVariousCCGT
NameHazelwood SynergenPelican Point
Price cycles in IPR’s key markets not in sync
Continued strength of Australian merchant portfolio, which remains substantially contracted over the next 1-2 years, helps to offset weakness in US and UK wholesale markets
IPR’s long term contracted assets provide a measure of steady cash flow and a foundation for the merchant business
Asset spread smoothes cycles in merchant marketsAsset spread smoothes cycles in merchant markets
Geographic diversity and balanceGeographic diversity and balance
2003 contracted position MW
2003 contracted position MW
GeographyMW
GeographyMW
Geography and Contracted PositionGeography and Contracted PositionGeographic diversity and balanceGeographic diversity and balance
Rest ofWorld
Rest ofWorld
Middle EastMiddle East
AustraliaAustralia
EuropeEurope
NorthAmericaNorthAmerica ContractedContracted
Long termPPALong termPPA
MerchantMerchant
North America
Europe
Middle East
Australia
Rest of World
Regional total
Corporate costs
Total
North America
Europe
Middle East
Australia
Rest of World
Regional total
Corporate costs
Total
£m£m
224
219
38
116
42
639
-
639
1
43
36
55
16
151
(13)
138
TurnoverTurnover PBIT*PBIT*
* Pre-exceptional items
315
440
63
226
85
1,129
-
1,129
99
100
86
101
31
417
(29)
388
130
242
40
110
46
568
-
568
59
67
49
49
17
241
(12)
229
Turnover PBIT* Turnover PBIT*20032003 2002
Six months ended 30 JuneSix months ended 30 June Year ended31 Dec 2002
Geographic analysisGeographic analysisTurnover & PBITTurnover & PBIT
A portfolio approach #1 A portfolio approach #1
Australia - the leading private power generator in the National Electricity Market
A model regional portfolio in a merchant market
Balance in terms of fuel and merit order
Scale and market presence
Integrated operations and trading
Balance within core regions Balance within core regions
1,470360485
Net MWNet MW
LigniteVariousCCGT
Hazelwood, VictoriaSynergen, S AustraliaPelican Point, S AustraliaSEAGas - 680km Pipeline
TypeTypeOperating AssetsOperating Assets
OperatingOperatingGas pipeline (construction near completion)Gas pipeline (construction near completion)
A portfolio approach #2A portfolio approach #2
For example:
Synergies with other processes eg. desalination
Reducing risk by securing fuel supply eg. SEA Gas
Cost saving and environmental initiatives eg. biomass co-firing
Seeking benefits through integrationSeeking benefits through integration
DesalinationDesalinationCombining power generation and desalinationCombining power generation and desalination
Lower cost of production – increase in cycle efficiency – spread of capital cost – virtual base load operation
of desalination plant
Approximately 40% additional revenues from water in an IWPP with power/water ratio of 15:1
Integration of power and water becoming a standard of the IPP process in Mid East countries
Good precedent for development elsewhere
Shuweihat S1Umm Al Nar*
Umm Al Nar
1,500 MW805 MW
1,550 MW
100 MIGD162 MIGD
25 MIGD
*part of operating capacity to be decommissioned in 2008
IPR has desalination capability at five assets in its portfolio. At Shuweihat, the world’s largest distillers are currently under construction (16.8 MIGD each)
Under Construction
Operating
Plant Power Desalination
Securing fuel supplySecuring fuel supply
Security of long-term fuel supply
Cost savings – expands profit potential beyond ‘spark spread’
680 km gas pipeline (with 18” diameter) from Victoria to South Australia
International Power, Origin Energy and TXU Australia as equal shareholders
Gas will be supplied to Pelican Point Power under a 10 year GSA with BHP Billiton
‘Energy corridor’ opportunities
The SEA Gas Pipeline, Australia The SEA Gas Pipeline, Australia
Bio-fuel trials ongoing
Up to five bio-fuels to be trialled inc. sawdust and olive products
All necessary consents in place for trials
Registered with Ofgem for ROC and LEC’s (during trials)
Encouraging results so far
Moving towards commercial operation before end of 2003
Co-firing trials at Rugeley underwayCo-firing trials at Rugeley underwayBiomass co-firing Biomass co-firing
A portfolio approach #3A portfolio approach #3
O&M best practice
HR efficiencies
Procurement efficiencies
Technology efficiencies
Financing
Cash management
Tangible cost savings and other efficienciesTangible cost savings and other efficiencies
Sharing of personnel and practices around a global portfolio
Opportunities for portfolio financing; global and regional banking relationships
The cookie cutter approach
A portfolio approach #4A portfolio approach #4
Growth though acquisition and greenfield / brownfield development
Optimising the balance of merchant and contracted assets
And maintaining fuel diversity and spread across the merit order
By leveraging off our presence in regional markets
A springboard for growth A springboard for growth
20022002 20012001 20002000
EPS
PBIT
Free cash flow*
EPS
PBIT
Free cash flow*
15.5p
£388m
£252m
12.3p
£326m
£179m
6.6p
£221m
£(79)m
* Free cash flow is defined as operating cash flow, which includes exceptionals (plus or minus), minus interest, tax and maintenance capex, but before growth capex
H1 2003H1 20035.1p
£138m
£45m
Earnings backed by cashEarnings backed by cash
Balance sheetBalance sheet
Fixed assets Intangibles & tangibles Investments
Net current liabilitiesProvisions and creditors > 1 yrNet debtNet assets
GearingDebt capitalisation
Net debt Cash & liquid resources Recourse debt and convertible bond Non-recourse debtTotal net debt
Off balance sheet debt (JV’s and associates)
Fixed assets Intangibles & tangibles Investments
Net current liabilitiesProvisions and creditors > 1 yrNet debtNet assets
GearingDebt capitalisation
Net debt Cash & liquid resources Recourse debt and convertible bond Non-recourse debtTotal net debt
Off balance sheet debt (JV’s and associates)
£m£m
2,562 500
3,062 (81)
(278)(834)
1,869
45% 31%
859 (264)
(1,429)(834)
(536)
2,474 507
2,981 (138)(262)(812)
1,769
46%31%
842 (268)
(1,386)(812)
(503)
30 June2003
30 June2003
31 Dec2002
Our broad but regionally focused geographic distribution
Our expertise in operating a balanced portfolio of high quality assets
Our solid base of long term contracted output and our trading expertise in merchant markets
Our demonstrated ability to leverage off our portfolio to continue to grow the business
Our liquidity, cash flow and balance sheet strength that underpin our performance and our prospects
As a wholesale power generator, the keys to our continued success are . . .As a wholesale power generator, the keys to our continued success are . . .
In conclusion
In conclusion
Morgan StanleyEuropean Power & Utility Summit