Half year results for the six months ended 30 June 2018 - Drax

Half year results for the six months ended 30 June 2018

Full year expectations unchanged, H1 impacted by two unplanned outages

Top Stories
RNS Number :  5142V
Drax Group PLC
Six months ended 30 JuneH1 2018H1 2017
Key financial performance measures
EBITDA (£ million)(1)102121
Underlying earnings (£ million)(2)79
Underlying earnings per share (pence)(2)1.62.2
Interim dividends (pence per share)5.64.9
Net cash from operating activities (£ million)112197
Net debt (£ million)(3)366372
Statutory accounting measures
Operating profit/(loss) (£ million)12(61)
Loss before tax (£ million)(11)(104)
Reported basic loss per share (pence)(1)(21)

Financial and Operational Highlights

  • H1 EBITDA lower year on year due to two unplanned outages, other areas performing well
  • Statutory loss before tax includes lower level of H1 EBITDA and asset write off
  • Refinancing complete – swapped floating for fixed rate debt with 7.5-year maturity
  • Sustainable and growing dividend
    • Increase in 2018 interim dividend to £22.4 million (5.6 pence per share) (H1 2017: £20 million)
    • Expected 2018 full year dividend of £56 million
    • Ongoing £50 million share buy-back programme – £13 million at 30 June 2018

Good progress with strategic initiatives, on track to deliver long-term objectives

  • Third biomass pellet plant, LaSalle Bioenergy, commissioning ahead of plan – full capacity Q1 2019
  • Conversion of fourth biomass generating unit on schedule and budget, commissioning late summer
  • Programme for long-term reduction in biomass cost including sawmill co-location and rail spur investment
  • Confident in growing requirement for system support services over coming years
  • Development of options for future generation:
    • Coal-to-gas repowering – detailed planning application accepted for review June 2018
    • Four OCGTs(4) – two projects in next capacity market auction, planning applications accepted for review for remaining two projects
  • B2B Energy Supply delivering solid progress to grow number of customer meters

2018 outlook

  • Full year financial expectations unchanged
    • Generation – fourth biomass unit conversion, improved margins, on target availability and capacity payments
    • Continued growth in Pellet Production and B2B Energy Supply
  • Capital Markets Day, 13 November

Will Gardiner, Chief Executive of Drax Group plc, said:

“Drax continues to be at the heart of decarbonising UK energy, securing government support to convert a fourth unit to biomass and piloting a Bioenergy Carbon Capture and Storage project, supporting the UK Government’s carbon capture and storage ambitions.

“Full year EBITDA expectations remain unchanged. However, first half EBITDA was lower, principally due to two specific generation outages. We made excellent progress with our Pellet Production business, driving down costs while producing at record levels and our B2B Energy Supply business continues to increase customer numbers. We also remain on track with our investment projects: the conversion of a fourth unit to biomass, and the development of our OCGT and coal-to-gas repowering options.

“We remain focused on safe and efficient operations and returns to shareholders and expect to declare a full year dividend of £56 million for 2018.”

Group Financial Review

  • Increase to operating profit includes unrealised gains on derivative contracts of £24 million (2017: loss £86 million)
  • Decrease in underlying earnings per share – principally reflects lower EBITDA from biomass generation in H1 2018 vs H1 2017
  • Reported basic earnings per share – a loss of 1.0 pence, which includes write off of coal-specific assets (£27 million) following commencement of fourth biomass unit conversion, largely offset by unrealised gains on derivative contracts (£24 million)
  • Tax – tax credit reflecting benefit of Patent Box claims
  • Capital investment of £46 million, full year investment expectation unchanged at £100–£110 million
    • Core maintenance (£50 million), improvement and optimisation projects (£20-£30 million) and conversion of a fourth biomass unit (£30 million)
  • Net debt of £366 million (31 Dec 2017: £367 million), including cash on hand of £245 million

Operational Review

Pellet Production – Good quality pellets at lowest cost

  • EBITDA up £14 million to £10 million
    • 80% increase in pellet production to 0.7 million tonnes (H1 2017: 0.4 million tonnes)
    • 12% reduction in cost per tonne
  • LaSalle Bioenergy (LaSalle) commissioning complete, full capacity Q1 2019
  • Biomass cost reduction initiatives
    • Co-location and offtake agreement with Hunt Forest Products for low-cost sawmill residues at LaSalle
    • Investment in LaSalle rail spur (£11 million) – reduced transport cost to Baton Rouge port facility

Power Generation – Optimisation of existing assets and decarbonisation projects

  • EBITDA down £49 million to £88 million
    • Rail unloading building outage restricted operation of two ROC(5) units (January 2018)
    • Generator outage on one ROC(5) unit (February 2018)
    • System support and flexibility £36 million (H1 2017: £48 million) – lower due to specific Black Start contract (Q1 2017)
    • Offset by 2016 insurance proceeds and lower carbon cost following decision to convert a fourth unit to biomass
  • Electricity output (net sales) down 17% to 8.9TWh (H1 2017: 10.7TWh)
    • Two unplanned outages on ROC(5) units in Q1 and reduced coal generation
    • High biomass availability in Q2
  • 71% of generation from biomass (H1 2017: 68%)
  • Commenced Bioenergy Carbon Capture and Storage (BECCS) pilot project, £0.4 million cost

B2B Energy Supply – Profitable business with growth in customer meters

  • EBITDA up £4 million to £16 million
    • 9% increase in customer meter points to 387,000 (H1 2017: 356,000)
    • Increase in bad debt reflecting challenging business environment for some customers
  • Strong renewable proposition – 59% of sales renewable
  • Continued investment in next generation IT systems
  • Development of flexibility and system support market

Notes:

  1. EBITDA is defined as earnings before interest, tax, depreciation, amortisation and material one-off items that do not reflect the underlying trading performance of the business.
  2. Underlying earnings exclude unrealised gains on derivative contracts of £24m (H1 2017: unrealised losses of £86m) and material one-off items that do not reflect the underlying performance of the business (finance costs of £7m (2017: £24m), acquisition and restructuring costs of £3m (2017: £6m), write off of coal-specific assets of £27m (H1 2017: £Nil), and the associated tax effect.
  3. Borrowings less cash and cash equivalents.
  4. Open Cycle Gas Turbine.
  5. Renewable Obligation Certificate.

View complete half year report

View analyst presentation