a) Edison Mission Energy
On 17 December 2004, International Power completed the acquisition of the international generation portfolio of Edison Mission Energy (the EME portfolio), in a 70:30 partnership with Mitsui Power Ventures Limited, a subsidiary of Mitsui & Co of Japan, for a consideration of US$2,079 million. The acquisition method of accounting has been adopted for the acquisition and the results have been consolidated since 17 December 2004. The completed acquisition includes all the EME portfolio, as detailed in the Shareholders' Circular dated 5 November 2004, except for: CBK, a 396 MW (net) hydro scheme in the Philippines; Tri Energy, a 175 MW (net) gas fired plant in Thailand and Doga, a 144 MW (net) gas fired plant in Turkey.
| Fair value adjustments | ||||
| Book value £m |
UK GAAP and accounting policy alignment £m |
Revaluations £m |
Fair value to the Group £m |
|
|---|---|---|---|---|
| Intangible fixed assets | 169 | (169) | – | – |
| Tangible fixed assets | 1,457 | (162) | 196 | 1,491 |
| Investments | 494 | 36 | 114 | 644 |
| Stocks | 9 | – | – | 9 |
| Debtors: amounts due within one year | 78 | (11) | – | 67 |
| Debtors: amounts due after more than one year | 15 | 28 | 37 | 80 |
| Current investments | 98 | – | – | 98 |
| Cash at bank and in hand | 31 | – | – | 31 |
| Creditors: amounts falling due within one year | (93) | 2 | – | (91) |
| Creditors: amounts falling due after more than one year | (1,269) | 39 | 98 | (1,132) |
| Provisions for liabilities and charges | (207) | 149 | (62) | (120) |
| Minority shareholders’ interests | (2) | (1) | (1) | (4) |
| Total assets acquired | 780 | (89) | 382 | 1,073 |
| Consideration (including acquisition costs) | 1,073 | |||
| Satisfied by: | ||||
| Cash consideration paid at balance sheet date | 1,060 | |||
| Cash consideration not yet paid at balance sheet date | 13 | |||
| Cash at bank and in hand acquired | (31) | |||
| Net cash outflow to the Group | 1,042 | |||
Mitsui Power Ventures Limited has a 30% minority interest in the total assets acquired net of the acquisition debt used to acquire the EME portfolio.
EME prepares its accounts under US GAAP. The fair value adjustments for the alignment of accounting policies reflect the adoption of Group accounting policies, principally in respect of eliminating historical acquisition goodwill, eliminating historical step up adjustments to the carrying value of tangible fixed assets at acquisition, capitalisation and depreciation of outage costs, changing the asset recognition of certain power plants which sell their output under long-term PPAs from tangible fixed assets to finance lease debtors, taking derivatives for hedging off balance sheet and providing for deferred tax on timing differences rather than temporary differences.
The revaluation adjustments are made to reflect the fair value of the net assets acquired and principally represent for tangible fixed assets the recognition of plant at the lower of depreciated replacement cost and value in use, the revaluation of debt instruments to market value, the recognition of unprovided amounts in respect of onerous contracts and other liabilities. The revaluation of investments comprises the Group's share of those revaluation adjustments outlined above applicable to the joint ventures and associates in which the Group has acquired an interest. No goodwill arises on the acquisition.
Due to the proximity of the acquisition to the balance sheet date, the fair values attributed to the EME portfolio are provisional and may be revised.
The unaudited results of the EME portfolio, based on EME's accounting policies under US GAAP prior to the acquisition and excluding fair value adjustments arising from the acquisition, for the year ended 31 December 2003 and from 1 January 2004 to 16 December 2004 are shown below, expressed in US dollars. Therefore the numbers presented do not take account of the impact of the adjustments outlined above.| Results | Period from 1 January 2004 to 16 December 2004 (unaudited) US$m |
Year ended 31 December 2003 (unaudited) US$m |
|---|---|---|
| Turnover | 666 | 646 |
| Operating profit | 198 | 163 |
| Profit on ordinary activities before taxation | 233 | 162 |
| Taxation | (31) | (40) |
| Profit on ordinary activities after taxation | 202 | 122 |
| Minority interests | (6) | (6) |
| Profit for the financial year | 196 | 116 |
| Fair value adjustments | ||||
| Book value £m |
UK GAAP and accounting policy alignment £m |
Revaluations £m |
Fair value to the Group £m |
|
|---|---|---|---|---|
| Tangible fixed assets | 328 | (323) | – | 5 |
| Stocks | 6 | – | – | 6 |
| Debtors: amounts due within one year | 13 | 11 | (2) | 22 |
| Debtors: amounts due after more than one year | 432 | 66 | 498 | |
| Cash at bank and in hand | 21 | – | – | 21 |
| Creditors: amounts falling due within one year | (35) | – | – | (35) |
| Creditors: amounts falling due after more than one year | (320) | – | – | (320) |
| Provisions for liabilities and charges | – | (27) | (27) | |
| Total assets acquired | 13 | 120 | 37 | 170 |
| Minority shareholders’ interests | (35) | |||
| Share of assets acquired | 135 | |||
| Satisfied by: | ||||
| Cash consideration | 135 | |||
| Cash at bank and in hand acquired | (21) | |||
| Net cash outflow to the Group | 114 | |||
Turbogás prepares its accounts under Portuguese GAAP. The fair value adjustments for the alignment of accounting policies reflect the adoption of Group accounting policies, principally in respect of changing the asset recognition of the power plant, which sells its output under a long-term PPA, from a tangible fixed asset to a finance lease debtor.
The revaluation adjustments are made to reflect the fair value of the net assets acquired and principally represent the revaluation of the finance lease debtor to fair value and the recognition of unprovided amounts in respect of tax liabilities. No goodwill arises on the acquisition.
In the year ended 31 December 2003 the unaudited profit after tax of Turbogás (based on its accounting policies prior to the acquisition) was £4 million. In the period from 1 January 2004 to 3 November 2004 Turbogás recorded profit after tax of £14 million. No minority interests were reflected in these Turbogás results.