Preliminary Results
Year ended 31 December 2005
London
7 March 2006
1
Philip Cox
Chief Executive Officer
2
Highlights
Strong financial performance
– EPS at 13.5p – up 57%
– profit from operations £501 m – up 126%
– free cash flow £285m – up 174%
– dividend 4.5p per share – up 80%
Profit from operations up in all regions
– UK and US merchant markets continue recovery
– acquisitions performing well
2006 expected to show further growth
An excellent year
3
Financial Review
Mark Williamson
Chief Financial Officer
4
Income statement
Year ended 31 December
£m 2005 2004 % change
PBIT from subsidiaries 303 109
PAT from JVs and associates 198 113
Profit from operations 501 222 126%
Interest (202) (77)
PBT 299 145 106%
Tax (55) (25)
Minority interest (45) (8)
Profit for the period 199 112 78%
EPS (basic, pre-exceptional) 13.5p 8.6p 57%
Dividend per share 4.5p 2.5p 80%
All numbers exclude exceptional items
5
Effective tax rate and interest cover
Year ended 31 December
£m 2005 2004
PBIT from subsidiaries 303 109
PBIT from JVs and associates 345 179
PBIT 648 288
Total interest* (292) (123)
Interest cover 2.2x 2.3x
Profit before total tax 356 165
Total tax* (111) (42)
Effective tax rate* 31% 25%
*Includes subsidiaries and JVs and associates
6
Income statement
Year ended 31 December
£m 2005 2004 % change
PBIT from subsidiaries 303 109
PAT from JVs and associates 198 113
Profit from operations 501 222 126%
Interest (202) (77)
PBT 299 145 106%
Tax (55) (25)
Minority interest (45) (8)
Profit for the period 199 112 78%
EPS (basic, pre-exceptional) 13.5p 8.6p 57%
Dividend per share 4.5p 2.5p 80%
All numbers exclude exceptional items
7
Geographic analysis
Profit from operations
Year ended 31 December
£m 2005 2004 % change
North America 49 (21) n/a
Europe 260 97 168%
Middle East 24 20 20%
Australia 125 98 28%
Asia 102 60 70%
Regional total 560 254 120%
Corporate costs (59) (32) 84%
Profit from operations 501 222 126%
Note: Profit from operations = PBIT from subsidiaries plus PAT from JVs and Associates
All numbers exclude exceptional items
8
Sources of growth
£m £42m (£27m)
£27m £501m
500
£163m £4m
400
£70m
300
£222m
200
Profit from operations up 126%
100
0
2004 PFO North Europe M iddle Australia Asia Corporate 2005 PFO
America East costs
9
North America
Merchant markets
New England 2005 2004
Achieved spark spread ($/MWh) $6 $12
Profit from operations
Load factor 40% 25%
£m
50
49 Texas - Midlothian 2005 2004
Achieved spark spread ($/MWh) $12 $8
25
Load factor 55% 30%
Texas - Hays 2005 2004
0 Achieved spark spread ($/MWh) $12 n/a
-21
Load factor 65% n/a
-25
2004 2005
Addition of EcoEléctrica
Improvement in Texas spreads and load factors
Hays returned to service May 2005
Includes IAS39 income of £1m
10
Europe
UK merchant markets*
Profit from operations up 168% Rugeley 2005 2004
£m Achieved dark spread (£/MWh) £15 £9
300
Load factor 60% 50%
260
200 Deeside 2005 2004
Achieved spark spread (£/MWh) £12 £5
Load factor 60% 70%
100
97 * Spark spreads exclude the cost of CO2
First time contribution from acquired assets:
0
2004 2005 EME European portfolio, Turbogás and
Saltend
Strong contribution from UK assets
Includes £22m IAS 39 charge
11
Middle East
Profit from operations up 20%
£m
First full year of profits from Shuweihat
30
2006 will benefit from completion of
construction programme
20
24 No IAS39 impact
20
10
0
2004 2005
12
Australia
Profit from operations up 28%
Merchant markets
£m
150 Hazelwood 2005 2004
Achieved price ($A/MWh) $A34 $A38
100
125 Load factor 80% 80%
98
Addition of EME assets –
50 Loy Yang B, Kwinana
First time profits Canunda and
EnergyAustralia Partnership
0
2004 2005 Roll off of Hazelwood contracts placed
in prior years
Includes £15m IAS39 charge
13
Asia
Profit from operations up 70%
£m
First time profits from Paiton and Uch
125 Strong results from KAPCO
100
Includes IAS39 income of £1m
102
75
50 60
25
0
2004 2005
14
Corporate costs
Year ended 31 December
£m 2005 2004
Functional costs - ongoing 41 33
Employee options and awards 7 (2)
One-off post acquisition costs 2 1
Sarbanes Oxley 2 -
Provision for CEGB legacy items 7 -
59 32
15
Free cash flow
Year ended 31 December
£m 2005 2004 % change
Operating cash flow from subsidiaries 492 198
Dividends - JVs and associates 92 69 33%
Capex - maintenance (72) (59)
Cash generated from operations 512 208 146%
Interest paid (196) (84)
Tax paid (31) (20)
Free cash flow 285 104 174%
16
Movement in net debt
Year ended 31 December
£m 2005 2004
Free cash flow 285 104
Growth capex (188) (158)
Acquisitions, disposals & investments (319) (1,261)
TXU recovery - exceptional 58 -
Rights issue/share issue 2 286
Finance costs - exceptional (5) (26)
Dividend Paid (37) -
Funding from minorities, FX & other (101) 227
Decrease/(increase) in net debt (305) (828)
Opening external cash (debt) (2,745) (692)
Transitional IAS32/39 adjustment 44 -
Acquired debt 27 (1,225)
Closing external debt (2,979) (2,745)
17
Capital expenditure - maintenance
Maintenance capex Includes only subsidiaries
£m
160 c£150m Intervals between major maintenance vary
between 3 and 6 years. 2005 was
unusually low
120
Average annual cost of current portfolio
80 £72m c.£100m
Operational excellence and availability
40 paramount
0
2005a 2006e
18
Capital expenditure - growth
Growth capex Growth capex focused on Middle
£m East projects
210
£188m
180
150
120
£100m*
£63m
90
60
30
0
2005a 2006e
* Estimate on basis of current committed projects
19
Balance sheet
As at 31 December
£m 2005 2004
Fixed assets
Intangible and tangibles 4,590 3,748
Investments 1,379 1,255
Other long-term assets 623 664
6,592 5,667
Net current liabilities (327) (116)
Provisions and creditors > 1 year (911) (748)
Net debt (2,979) (2,745)
Net assets 2,375 2,058
Gearing 125% 133%
Debt capitalisation 56% 57%
Net debt of Associates and JVs (1,625) (1,285)
20
Net debt structure
JV’s / Associates
As at 31 Dec 2005 IPR Project cash off-balance sheet
£m Total Corporate (debt)* net debt*
Cash and cash equivalents 620 185 435
Recourse debt
Corporate Revolver (64) (64)
Convertible bond (2023) (125) (125)
(189) (189) -
Non recourse debt
IPM - acquisition debt (295) - (295) -
IPM - Mitsui preferred equity (175) - (175) -
North America (507) - (507) (216)
Europe (1,128) - (1,128) (304)
Middle East (261) - (261) (374)
Australia (1,013) - (1,013) (53)
Asia (31) - (31) (678)
(3,410) - (3,410) (1,625)
Total net debt (2,979) (4) (2,975) (1,625)
* Project debt is secured solely on the assets of the project concerned (non recourse) 21
Financial summary
Strong financial performance
– profit from operations of £501m, up 126%
– EPS of 13.5p, up 57%
Strong positive cash flow
– free cash flow of £285m, up 174%
DPS of 4.5p, up 80%
22
Philip Cox
Chief Executive Officer
23
Strong performance
from acquisitions
Enterprise value of acquisitions in 2004 and 2005 > £4 billion
Successful integration reflected in excellent results
Strong performance by all acquired assets
Acquisition Gross MW Performance
EME 6,100 All 9* assets have performed at, or above, acquisition assumptions
Turbogás 990 High availability and strong financial performance
Saltend 1,200 Excellent operational performance – again delivering above planned financial results
* Now 8 assets, 5,800 MW (gross) following sale of Valley Power in August 2005
Successful integration
24
North America
Market recovery on track
– tightening reserve margins and improved spark spreads in both merchant
markets
– spreads may vary with volatile gas prices
– some longer term hedging, but 2007 onwards lightly traded
– expect final clarification on capacity market in New England in Q4 2006
Contracted plants all performed well
– EcoEléctrica key contributor - continued strong performance
Constant focus on operational performance
– Hays, Midlothian > 97% availability during peak season
– in-house outage team
- lower cost
- better control
25
North America
Texas
Strong performance in 2005
– higher than anticipated load factor
– increasing congestion provides North Zone premium
Strong Q4 Texas - North Zone
– warmer weather 2005 2006
– more outages in Texas
Achieved spark spread ($/MWh) 12 20
– gas price volatility
Load factor 55% 45%
Overall recovery on track
– improving spark spreads Forward contracted* n/a 60%
– 3% demand increase 2005
* % of anticipated output
– reserve margin 24%
Market recovery anticipated 2007-2009
A strong 2005 – recovery on track
26
North America
New England
Marginal improvement in 2005
– less benefit from increased gas prices
Improving spark spreads
New England 2005 2006
3% increase in peak
demand 2005 Achieved spark spread ($/MWh) 6 14
Reserve margin 20% Load factor 40% 40%
Market recovery Forward contracted* n/a 30%
anticipated 2007-2009
* % of anticipated output
Capacity market update
– FERC Hearing Judge announced agreement in principle
(Feb 2006)
– expect final clarification Q4 2006
Recovery on track
27
Europe
UK merchant market
Reserve margins continue to tighten – 15% anticipated by 2010/11
Power prices driven by high gas and carbon prices
Significant improvement in dark spreads - spark spreads yet to respond
– Saltend has benefit from long term gas contract
First Hydro a strong performer
– in short term and balancing services markets
– through continued demand for reserve and response services
UK portfolio well positioned
– benefiting from fuel diversity
– portfolio approach in action
IPR portfolio benefiting from UK recovery
28
Europe
UK merchant market
Improving dark spreads
– marginal improvement in
spark spreads Achieved spread (£/MWh)
CO2 – currently trading at €26 per tonne Calendar year 2005 2006
– £7 MWh – gas Gas (Deeside) 12 13
– £16 MWh – coal
Coal (Rugeley) 15 26
FGD – now planned for Rugeley, installation by
late 2008/early 2009
– opted in LCPD
Rugeley Deeside Saltend
2005 2006 2005 2006 2005 2006
Load factor 60% 70% 60% 45% 95% 85%
Forward contracted n/a 65% n/a 60% n/a 70%
Dark spreads well ahead of spark spreads
29
Europe
Portugal
– excellent performance by Pego and Turbogás
- record availability at Turbogás >95%
– PPAs in place - no surprise in market liberalisation
- but slow progress
Czech Republic
– strong power and district heating demand
Italy, ISAB
– high oil prices have benefited margins
– high availability and major outage completed ahead of plan
Turkey, Uni-Mar
– high availability
Continental European portfolio delivering excellent returns
30
Middle East
- a growing asset portfolio
Gross MW Gross MIGD
8,000
Power 6,870 6,995
7,000 6,570
Water
6,000
5,000 500
4,000
3,355 348
393
400 A growing business in a
3,000 2,655
262 262
288 300 growing region
2,000 162 200
1,155
1,000 100
0 285 285 285 285 0
2003 2004 2005 2006 2007 2008
(1)
650 MW retires at the end of 2008
Current construction programme largely complete in 2006
– 2006 has first time earnings from Tihama, Ras Laffan and Hidd
Macro factors for Middle East all point to significant growth
– growing and more diverse economies
– strong demand for power and desalinated water: 6-9% p.a.
– 75 GW projects in next 8 years – approx enterprise value of $15 billion plus
31
Australia
Prices relatively subdued in 2005
– lack of volatility
Well timed forward contracting a clear
benefit Victoria
2005 2006
2006 merchant earnings expected to be
slightly down on 2005 Achieved price 34 32
(A$/MWh)
Forward curve for 2006 (and 2007)
shows some improvement
– both Victoria and South Australia
Hazelwood Loy Yang B Pelican Point
2005 2006 2005 2006 2005 2006
Load factor 80% 80% 95% 90% 35% 40%
Forward contracted n/a 70% n/a 80% n/a 70%
32
Australia
Environmental agreement reached for Hazelwood
– ensures long-term access to coal reserves
Excellent performance from Loy Yang B
Contracted assets – Kwinana, Canunda, SEAGas
– all are operating well and delivering contractual requirements
Valley Power (300 MW peaker) successfully divested
Retail partnership with EnergyAustralia – Victoria and
South Australia
– strong growth in power and gas customers from 175,000
to 275,000
– circa. 5% market share
– additional route to market
Balanced portfolio provides excellent market position
33
Asia
Excellent growth in profit from operations
– all acquired assets performing well
– all assets delivering contractual requirements
Embedded value in listed companies
Share price Value of IPR*
at date IPR % shareholding (£m)
Malakoff 8.8 Ringitt 18.2% 219
HUBCO 24 Rupees 16.6% 45
KAPCO 47 Rupees 36.0% 141
Total 405
* As at 3 March 2006
Solid long term contracted assets
34
Summary and outlook
Strong earnings and cash performance across the portfolio
– acquisitions successfully integrated
Continuous focus on operational excellence
Growth opportunities will be targeted in our core markets
– alongside commitment to increase dividend pay-out ratio to 40% over medium
term
We expect 2006 to be a year of further growth
– US and UK merchant markets continue towards full recovery
– greenfield growth in Middle East
IPR – a strong company well positioned for growth
35