Key performance indicators and financial highlights

Transcription

1 28 Key performance indicators and financial highlights International Power Annual Report 2008 Key performance indicators and financial highlights We use a range of performance indicators, both financial and non-financial, to measure the delivery of our strategic objective and to manage the business. Key performance indicators We use a range of performance indicators, both financial and non-financial, to measure the delivery of our strategic objective growth in shareholder value through the efficient operation, financing, and trading of output from our portfolio, whilst maintaining the highest levels of safety and environmental performance and to manage the business. The most important of these measures are considered Key Performance Indicators (KPIs) and their targets are determined annually during the business planning process. The KPIs are used by management to compare actual performance during the year, and the latest monthly forecasts, against the annual budgeted targets. Our KPIs, both financial and non-financial, are set out below. Financial KPIs Our financial KPIs address two key aspects of the business: its profitability and its cash generation Profit From Operations (PFO)* Earnings Per Share (EPS)* Free cash flow Non-financial KPIs Our non-financial KPIs address other key performance aspects of the business: safety, environmental and operational performance Accident Frequency Rate (AFR) Reportable environmental incidents Technical availability * Financial KPIs are presented excluding exceptional items and specific IAS 39 mark to market movements The explanations and results of our KPIs follow. Financial KPIs Year ended 31 December PFO 222m 536m 773m 904m 1,050m EPS 8.6p 14.6p 22.4p 27.1p 32.4p Free cash flow 104m 285m 456m 653m 513m We consider PFO and EPS, excluding exceptional items and specific IAS 39 mark to market movements (for more information see pages 33, 60 and 107 to 108), to be appropriate indicators of performance, as these measures: exclude significant items which, by virtue of their size or incidence, could potentially distort year-on-year comparisons allow a better understanding of the financial information presented, and specifically the Group s underlying business performance, by excluding fair value movements on economic hedges assist shareholders and analysts who, for the reasons set out above, have expressed a preference for the reporting of results without the inclusion of the effects of exceptional items and specific IAS 39 mark to market movements Presenting the Group s segmental results, total PFO, and EPS, before exceptional items and specific IAS 39 mark to market movements, is consistent with the way management measures the Group s performance in its budgets, forecasts and management accounts on a day-to-day basis. The financial KPIs are calculated from data included within the consolidated financial statements. On pages 33 to 35, the results of our financial KPIs, which are presented excluding exceptional items and specific IAS 39 mark to market movements, are also reconciled to the results presented including exceptional items and specific IAS 39 mark to market movements.

2 Business overview 29 Profit from operations PFO is a measure of the operating profitability of the Group. It excludes the impact of all non-operating costs from subsidiaries, financing costs and income tax expense, and therefore provides a comprehensive measure of operational performance. Earnings per share EPS is a measure of the overall profitability of the Group and shareholder returns. It is defined as the profit in pence attributable to each Ordinary Share in the Company, based on the consolidated profit for the year, after deducting tax and minority interests. Growth in EPS over time is indicative of the ability of the Group to add value. 1,050m 32.4p 773m 904m 27.1p 22.4p 536m 14.6p 222m 8.6p 2004 Profit from operations Earnings per share PFO, excluding exceptional items and specific IAS 39 mark to market movements, has grown at an average compound growth rate of 47% over the last four years reflecting strong financial performance over the period. The results for the current and prior year are also presented in the consolidated income statement on page 103. This KPI is also used as one of the measures to evaluate Regional Directors performance when quantifying their annual bonuses (more information can be found in the Directors remuneration report on pages 84 to 99). EPS, excluding exceptional items and specific IAS 39 mark to market movements, has grown at an average compound growth rate of 39% over the last four years. The calculation of this year s result is presented in note 11 to the financial statements on page 126. This KPI is also used as the basis of one of the measures to evaluate Directors performance when quantifying their annual bonuses and as a performance condition in their long-term incentive plans (more information can be found in the Directors remuneration report on pages 84 to 99). This KPI is also used as a performance condition in the Company s share-based reward and incentive schemes (more information can be found in note 28 of the consolidated financial statements on pages 141 to 145).

3 30 Key performance indicators and financial highlights International Power Annual Report 2008 Free cash flow Power generation is a capital-intensive business and hence it requires the assets within the Group to generate sufficient cash flow to repay the initial investment in those assets, to provide returns for shareholders and to provide funds for future investment opportunities. We define free cash flow as net cash flow from operating activities after all pre-exceptional operating costs, maintenance capital expenditure, interest and tax (i.e. exceptional items are excluded from free cash flow). Non-financial KPIs Accident frequency rate Health and safety is of vital importance in our business. It is important to provide all personnel at our sites with a safe place to work, and any accident is disruptive to the running of the business. AFR is our reporting standard and is defined as the number of Lost Time Accidents (LTAs) divided by the number of hours worked, multiplied by 100, m m 513m m m 2004 Free cash flow Accident frequency rate International Power Opatovice, Czech Republic We consider this measure of cash flow to be a key indicator of performance as it measures the cash generated from the underlying business performance of continuing operating activities. This is consistent with the way management measures the Group s performance in its budgets, forecasts and management accounts on a day-today basis. This KPI is also used as one of the measures to evaluate Directors performance when quantifying their annual bonuses (more information can be found in the Directors remuneration report on pages 84 to 99). Free cash flow has grown at an average compound growth rate of 49% over the last four years reflecting both an increase in the size of the Group and strong operational and financial performance over the period. The results for the current and prior year are also presented in the consolidated cash flow statement on page 106. We define a LTA as 24 hours absence from work this is a much tighter definition than the usual legal requirement of three days. In addition to recording accidents at our subsidiaries we include, in the results presented, any accidents pertaining to staff at joint ventures and associates and we also include contractors in our accident statistics, which is not common practice. This approach to reporting helps us to improve our understanding and management of health and safety at our sites. The majority of the injuries are relatively minor and result from slips, trips and falls, or incorrect lifting and handling. More serious injuries are rare. In 2008 the AFR for employees and contractors combined was This can be compared with 0.12 for International Power has seen a reduction in AFR over the last three years and intends to maintain this improvement. This does not mean we tolerate unsafe behaviour; our overriding target is zero LTAs. All Regional Directors have a common personal, non-financial objective, relating to Health, Safety and the Environment (HS&E). Uch, Pakistan

4 Business overview 31 Non-financial KPIs Year ended 31 December AFR Reportable environmental incidents Technical availability 90.1% 89.6% 90.0% 89.1% All non-financial KPIs are calculated on a full impact basis, at all assets where we have an interest, including joint ventures and associates. Reportable environmental incidents Our power plants are issued with environmental licences by the relevant statutory authorities. Environmental licences require that any significant environmental incident is reported. We have always had a policy of complying with all applicable environmental regulations and we measure our ability to comply with environmental regulations by recording the number of reportable environmental incidents at all plants where we have an interest (including joint ventures and associates). Technical availability Technical availability measures when a plant is available for dispatch. Each of our plants will generally be unavailable during some periods in the year due to a combination of planned outages for maintenance and unplanned outages. An important aspect of our business is ensuring that our merchant power trading and Power Purchase Agreements (PPAs) are closely aligned to our operational activities and availability planning is a key factor in this regard. The year-on-year variance in the profile of planned outages influences the technical availability % 90.0% 89.6% 89.1% Reportable environmental incidents Technical availability In 2008 there were six reportable environmental incidents which demonstrates a significant improvement on This information is derived using data submitted by individual plants directly into the corporate reporting system. The environmental incidents reported in 2008 related to relatively minor breaches of the pollution control limits set by operating licenses and none have led to prosecution. International Power has reduced reportable environmental incidents over the last four years and intends to maintain this improvement as it moves towards the ultimate goal of zero reportable environmental incidents. Technical availability is calculated by first determining the potential maximum amount of electricity that could be generated in the year if all our plants, including joint ventures and associates, were operated at full output for the entire year. We then deduct from this maximum amount the electricity that could not be produced due to planned and unplanned outages at the plants throughout the year. This number is then expressed as a percentage of the potential maximum electricity that could be generated, where all these quantities are calculated in terms of electrical energy (GWh). This calculation is performed by using data submitted by individual plants directly into the corporate reporting system. In 2008 we achieved technical availability of 89.1%, a decrease from the 90.0% achieved in The extension of the outage at Rugeley was the key contributor to the reduced technical availability this year. If technical availability at Rugeley had been consistent with its average performance over the last three years, the technical availability of the portfolio as a whole would have been 90.3%.

5 32 Section Key performance indicators and financial highlights International Power Annual Report 2008 Financial highlights The financial information included in the consolidated financial statements has been prepared on the basis of all applicable International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU). A discussion of the policies we believe to be most critical in considering the impact of estimates and judgements on the Group s financial position and results of operations are set out on pages 52 to 61. In order to allow a full understanding of the financial information presented within the consolidated financial statements, and specifically the Group s underlying business performance, the Group presents its income statement such that it separately identifies: the results excluding exceptional items and specific IAS 39 mark to market movements the effect of the exceptional items and specific IAS 39 mark to market movements the total result The basis of preparation is outlined more fully in note 1 to the consolidated financial statements on pages 107 to 108. However, in summary, those items that the Group separately present as exceptional are items which, in the judgement of the Directors, need to be disclosed separately by virtue of their size or incidence in order to enable a proper understanding of the financial information. Those items that the Group separately present as specific IAS 39 mark to market movements are those mark to market movements recorded in the income statement which relate to: derivative contracts into which the Group has entered in order to economically hedge certain of its physical and financial exposures; and fair value gains and losses on equity conversion features embedded within convertible bonds, so as to separately identify a non-cash movement which, if the conversion option is exercised, will ultimately be extinguished by the issue of equity. A summary of the Group s financial performance during the year is as follows: Income statement m m Excluding exceptional items and specific IAS 39 mark to market movements Revenue (including joint ventures and associates) 4,891 3,872 Profit from operations from subsidiaries from joint ventures and associates Profit from operations 1, Interest (368) (308) Profit before tax Taxation (123) (113) Profit for the year Attributable to: Minority interests Equity holders of the parent Earnings per share (basic) 32.4p 27.1p Including exceptional items and specific IAS 39 mark to market movements Profit from operations 1, Profit for the year Profit attributable to equity holders of the parent Earnings per share (basic) 44.2p 33.6p

6 Business Overall overview section 33 Al Kamil, Oman Profit from operations 2008 PFO (excluding exceptional items and specific IAS 39 mark to market movements) at 1,050 million is 16% ahead of 2007, driven by higher profit from operations in Australia and North America, a record year at First Hydro in the UK, and good performance from our long-term contracted asset base. PFO (excluding exceptional items and specific IAS 39 mark to market movements) is discussed in more detail in the regional review sections which follow. Reconciliation from PFO to PFO excluding exceptional items and specific IAS 39 mark to market movements Spanish Hydro, Spain m m PFO 1, Losses on exceptional items (Gains)/losses on specific IAS 39 mark to market movements (163) 330 PFO excluding exceptional items and specific IAS 39 mark to market movements 1, Segmental results Year ended 31 December 2008 Year ended 31 December 2007 Subsidiaries Share of Total Subsidiaries Share of Total joint ventures joint ventures and associates and associates m m m m m m North America Europe Middle East Australia (1) 82 Asia , Corporate costs (49) (49) (52) (52) PFO excluding exceptional items and specific IAS 39 mark to market movements , Exceptional items and specific IAS 39 mark to market movements 115 (9) 106 (398) 12 (386) Profit from operations , The regional performance is discussed in more detail on pages 36 to 51. Earnings per share 2008 EPS (excluding exceptional items and specific IAS 39 mark to market movements) at 32.4p is 20% ahead of This increase principally reflects those items discussed under the heading profit from operations and also reflects an increase in interest expense and a smaller increase in tax expense (both of which are discussed on page 53).

7 34 Key performance indicators and financial highlights International Power Annual Report 2008 Reconciliation from EPS to EPS excluding exceptional items and specific IAS 39 mark to market movements pence pence EPS 44.2p 33.6p Deduct after tax and minority interest gains on exceptional items (0.6)p (20.3)p (Deduct)/add after tax and minority interest (gains)/losses on specific IAS 39 mark to market movements (11.2)p 13.8p EPS excluding exceptional items and specific IAS 39 mark to market movements 32.4p 27.1p Balance sheet As at As at Net assets 4,135m 3,007m Net debt 6,318m 4,662m Gearing 153% 155% Debt capitalisation 60% 61% Free cash flow m m Profit for the year Depreciation, amortisation and other non-cash movements (1) Exceptional items 57 (233) Specific IAS 39 mark to market movement (172) 342 Dividends received from joint ventures and associates Capital expenditure maintenance (108) (71) Net sale/(purchase) of intangible assets 25 (48) Net increase in working capital (109) (4) Tax and net interest paid (485) (413) Free cash flow (1) Depreciation, amortisation and other movements include income statement charges for interest, tax, depreciation, and the share of profit of joint ventures and associates. Free cash flow for the year ended 31 December 2008 was 513 million, a decrease of 140 million compared with This decrease is driven by an increase in maintenance capital expenditure of 37 million, principally at Rugeley, Hazelwood and Saltend; and an increase in net interest paid of 87 million. In addition, there was a working capital increase in the year of 109 million due to stock building at Rugeley and a reversal of some one-off working capital benefits in 2007.

8 Business overview 35 Reconciliation from net cash inflow from operating activities to free cash flow m m Net cash inflow from operating activities Add back exceptional payment of Australian stamp duty 7 Free cash flow A review of liquidity is included on pages 55 to 57. Dividend The Board is proposing a final dividend of 8.59 pence per share, bringing the full-year dividend to pence per share (2007: pence per share), an increase of 20% year-on-year. Payment of this final dividend to shareholders registered on the Company share register on 5 June 2009 is due to be made on 9 July 2009, following approval at the 2009 AGM which will be held on 21 May Outlook We have a well established portfolio of long-term contracted assets which continues to perform well. We are also well positioned in our key merchant markets, although forward pricing in the UK and the US does not reflect the attractive long-term market fundamentals. In the absence of a significant improvement in pricing in these two markets, it is likely that Group profitability in 2009 will be lower than in However, our assets are well placed to capture value, from both market recovery and short-term pricing volatility. The financial position of the Group remains strong, with good corporate liquidity and no material refinancings in We expect to continue to deliver strong free cash flow in Tejo Energia (Pego), Portugal