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Preliminary Results

Preliminary Results. Year to 31 December 2003. Sir Neville Simms. Chairman. Philip Cox. Chief Executive Officer. 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

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Preliminary Results

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  1. Preliminary Results Year to 31 December 2003

  2. Sir Neville Simms Chairman

  3. Philip Cox Chief Executive Officer

  4. 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 2002 EPS PBIT Free cash flow* 10.2 p £285m £121m 15.5p £388m £252m * Free cash flow is defined as operating cash flow, minus interest, tax and maintenance capex, but before growth capex All numbers are before exceptional items

  5. North America

  6. 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

  7. ERCOT market background + Market spark spreads(peak hours) Demand / Supply GW $MWh 60.2 81.2 35% 1.7 2.4 8.7* 32.7 22.6 7.3 Demand (peak) Capacity Reserve margin Demand growth (2.8%) In construction Mothballed / retired (inc Hays) Controlled by banks / distressed GW > 30 years Distressed GW > 30 years 8 6 4 2 0 2002actual 2003actual 2004 Feb 04forward curve North Zonepremium$/MWh $1+ $2+ $4 3.15 5.30 5.00 - 5.50 Gas price$perBTUm + CCGT plant - 7200 heat rate - calendar average spreads - south zone prices * of which 1.9 Reliability Must Run

  8. ERCOT - market update Key factors for market recovery • 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

  9. NEPOOL market background Market spark spreads*(peak hours) Demand / Supply GW $MWh 15 25.4 31.4 24% 0.4 0.4 1.1 15.0 10.7 4.8 Demand (peak) Capacity Reserve margin Demand growth (1.5%) In construction Mothballed / retired Controlled by banks / distressed GW > 30 years Distressed GW > 30 years 12 9 6 3 0 2002actual 2003actual 2004 Feb 04forward curve $3.70 $6.80 $6.50 -7.00 Gas price$perBTUm * CCGT plant - 7200 heat rate - calendar average spreads - excludes ICAP / UCAP

  10. NEPOOL - market update Key factors for market recovery • 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

  11. 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

  12. Europe

  13. 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

  14. England & Wales market environment £MWh Demand / Supply Baseload Power and Fuel Prices 25 GW 20 55.9 68.0 22% 1.5% 1.4 2.4 17.5 23.2 5.9 Demand (peak) Capacity Reserve margin Demand growth In construction Mothballed / retired Controlled by bank / distressed GW > 30 years Distressed GW > 30 years 15 10 Baseload power (1) Coal price 5 Gas price 0 2002 2003 2004 (2) (3) £MWh Baseload Spark Spreads (3) 8 6 4 Gas 2 (1) NGC Jan 2004 Seven Year Statement Update Includes only Spalding and Immingham CHP Includes High Marnham and Drakelow. Coal (2) 0 (3) 2002 2003 2004

  15. Carbon update • 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)

  16. 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

  17. Middle East

  18. 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

  19. 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

  20. Australia

  21. 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

  22. Australia market background • 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 Victoria S Australia 8.5 9.5 12% 3.0% 2.8 3.7 32% 3.0% Demand GW (peak) Capacity GW * Reserve margin % Demand growth * Includes average interconnector availability of 50%

  23. 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

  24. Rest of the World

  25. 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

  26. Mark Williamson Chief Financial Officer

  27. Group Profit and Loss Account Year ended 31 December £m 2003 2002 Turnover - gross 1,273 1,129 PBIT 285 388 Interest (111) (132) Interest cover 2.6x 2.9x PBT 174 256 Tax (54) (77) Effective tax rate 31% 30% Minority interest (7) (6) Retained profit 113 173 EPS (basic) 10.2p 15.5p Note: All numbers are pre-exceptional

  28. Exceptional items Year ended 31 December £m 2003 2002 US impairment (404) - HUBCO - sale of share - impairment reversal 17 35 - - Czech Republic (sale of shares) 7 - China exit 3 - Deeside impairment - (45) Rugeley impairment - (58) KAPCO dividend - 42 Capitalised financing charges write off (16) - Total (358) (61) Tax effect 26 1 Net (332) (60)

  29. US Impairment £m $/kW 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 Book value of US assets pre impairment 1,004 443 Impairment (404) (178) Current carrying value 600 265 US installed merchant capacity is 4,050 MW

  30. Geographic analysisTurnover and PBIT Year ended 31 December 2003 2002 £m Turnover PBIT* Turnover PBIT* North America 414 2 315 99 Europe 474 103 440 100 Middle East 33 23 - 9 Australia 224 101 226 101 Rest of the World 128 84 148 108 Regional total 1,273 313 1,129 417 Corporate costs - (28) - (29) Total 1,273 285 1,129 388 * Pre-exceptional items. Pakistan is now included in Rest of the World

  31. Geographic analysisTurnover and PBIT Year ended 31 December 2003 2002 £m Turnover PBIT* Turnover PBIT* North America 414 2 315 99 Europe 474 103 440 100 Middle East 33 23 - 9 Australia 224 101 226 101 Rest of the World 128 84 148 108 Regional total 1,273 313 1,129 417 Corporate costs - (28) - (29) Total 1,273 285 1,129 388 * Pre-exceptional items. Pakistan is now included in Rest of the World

  32. Geographic analysisTurnover and PBIT Year ended 31 December 2003 2002 £m Turnover PBIT* Turnover PBIT* North America 414 2 315 99 Europe 474 103 440 100 Middle East 33 23 - 9 Australia 224 101 226 101 Rest of the World 128 84 148 108 Regional total 1,273 313 1,129 417 Corporate costs - (28) - (29) Total 1,273 285 1,129 388 * Pre-exceptional items. Pakistan is now included in Rest of the World

  33. Geographic analysisTurnover and PBIT Year ended 31 December 2003 2002 £m Turnover PBIT* Turnover PBIT* North America 414 2 315 99 Europe 474 103 440 100 Middle East 33 23 - 9 Australia 224 101 226 101 Rest of the World 128 84 148 108 Regional total 1,273 313 1,129 417 Corporate costs - (28) - (29) Total 1,273 285 1,129 388 * Pre-exceptional items. Pakistan is now included in Rest of the World

  34. Geographic analysisTurnover and PBIT Year ended 31 December 2003 2002 £m Turnover PBIT* Turnover PBIT* North America 414 2 315 99 Europe 474 103 440 100 Middle East 33 23 - 9 Australia 224 101 226 101 Rest of the World 128 84 148 108 Regional total 1,273 313 1,129 417 Corporate costs - (28) - (29) Total 1,273 285 1,129 388 * Pre-exceptional items. Pakistan is now included in Rest of the World

  35. Geographic analysisTurnover and PBIT Year ended 31 December 2003 2002 £m Turnover PBIT* Turnover PBIT* North America 414 2 315 99 Europe 474 103 440 100 Middle East 33 23 - 9 Australia 224 101 226 101 Rest of the World 128 84 148 108 Regional total 1,273 313 1,129 417 Corporate costs - (28) - (29) Total 1,273 285 1,129 388 * Pre-exceptional items. Pakistan is now included in Rest of the World

  36. Geographic analysisTurnover and PBIT Year ended 31 December 2003 2002 £m Turnover PBIT* Turnover PBIT* North America 414 2 315 99 Europe 474 103 440 100 Middle East 33 23 - 9 Australia 224 101 226 101 Rest of the World 128 84 148 108 Regional total 1,273 313 1,129 417 Corporate costs - (28) - (29) Total 1,273 285 1,129 388 * Pre-exceptional items. Pakistan is now included in Rest of the World

  37. Group operating cash flow Year ended 31 December £m 2003 2002 Operating cash flow from subsidiaries 184 276 Dividends – JV’s, associates and investments 101 115 Operating cash flow 285 391 Capex - maintenance (64) (48) Interest and tax (100) (108) Exceptional items - KAPCO dividend - Hazelwood refinancing - - 42 (25) Free cash flow 121 252

  38. Group net cash flow Year ended 31 December £m 2003 2002 Free cash flow 121 252 Capex – growth (57) (98) LD buy-downs 56 - Acquisitions and greenfield developments - (144) Disposal of investments 35 - Other (FX and share buy-back) (35) 75 Net cash flow 120 85 Opening external debt (812) (897) Closing external debt (692) (812)

  39. Balance sheet As at 31 December £m 2003 2002 Fixed assets Intangible & tangibles 2,049 2,474 Investments 538 507 2,587 2,981 Net current liabilities (90) (138) Provisions and creditors > 1 year (243) (262) Net debt (692) (812) Net assets 1,562 1,769 Gearing 44% 46% Debt capitalisation 31% 31% Associates and JVs net debt (712) (504)

  40. 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

  41. Financing accomplishments 2003 • 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 July September October 2004 February

  42. Net debt structure £m JV’s / Associates non-recourse off-balance sheet net debt Total IPR Corporate Subsidiaries Maturity Cash + liquid resources 743 534 209 n/a Recourse debt Convertible bond (old) (62) (62) - 2005 Convertible bond (new) (138) (138) - 2023 (200) (200) - Non recourse debt US (501) - (501) 2006* (81) Australia (531) - (531) 2012/13 (52) UK (83) - (83) 2008/current - Europe (44) - (44) 2007 (198) Middle East (51) - (51) 2017 (271) RoW (25) - (25) 2015 (110) (1,235) - (1,235) (712) Total net debt (692) 334 (1,026) * Reported as current debt

  43. 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

  44. Philip Cox Chief Executive Officer

  45. 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

  46. Outlook • Clear strategy • US restructuring number 1 priority • Growth opportunities in our core regions • Confirm 2004 earnings guidance of 7 - 9p EPS

  47. Preliminary Results Year to 31 December 2003

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