Tag: customers

Full year results for the twelve months ended 31 December 2018

Biomass domes
RNS Number: 0765R
Drax Group PLC
Adjusted(1)Total
Twelve months ended 31 December20182017 Restated(2)20182017 Restated(2)
Key financial performance measures
EBITDA (£ million)(3)250229
Profit / (loss) before tax (£ million)37514(204)
Basic earnings / (loss) per share (pence)10.40.75.0(41.3)

Good financial performance

  • Group Adjusted EBITDA up 9% to £250 million
  • Continued strong cash generation and balance sheet
    • 3x net debt to Adjusted EBITDA (2017: 1.6x net debt to Adjusted EBITDA)
    • Net cash from operating activities of £311 million (2017: £315 million)
    • Net debt(4) of £319 million (2017: £367 million)
  • Dividend growth – 15% increase in dividend per share – 14.1 pence per share (2017: 12.3 pence per share)
  • £50 million share buy back programme completed
  • Total profit before tax of £14 million includes gains principally related to foreign currency hedging of £38 million (2017: Total loss before tax of £204 million including unrealised losses of £177 million)

Dam and reservoir, Cruachan Power Station

Acquisition of ScottishPower Generation has accelerated strategy

  • 6GW multi-site, multi-technology portfolio of pumped storage, hydro and gas
  • Strong strategic fit with UK’s need for flexible, low carbon and renewable generation
  • High quality earnings with expected returns significantly in excess of weighted average cost of capital

Good progress with strategic initiatives

  • Successful low-cost conversion of fourth biomass unit
  • Third US biomass pellet plant commissioned and fully operational
  • Progress with biomass cost reduction programme including sawmill co-location and rail spur development
  • Commenced BECCS(5) pilot project and equity investment in C-Capture – technology proven with CO2 captured
  • Development of B2B Energy Supply customer and IT platform

Outlook

  • Continued growth in Adjusted EBITDA, cash generation and dividend
  • Integration of ScottishPower Generation
  • Continue to expect Capacity Market to be reinstated on same or similar basis
  • Attractive investment options for growth: biomass cost reduction, biomass capacity expansion and new gas

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

“Drax is now one of the leading generators of flexible, low carbon and renewable electricity in the UK. As the grid decarbonises, our ability to support intermittent renewables will become increasingly important as we strive to deliver our purpose of enabling a zero carbon, lower cost energy future.

“Drax performed well in 2018. Our commitment to operating safely and sustainably remains at our core. We commissioned our third pellet production plant, which contributed to our good results. After a difficult first quarter for our Power Generation business, we delivered strong availability and financial results. Whilst the year was challenging for our B2B Energy Supply business, we continued to grow our customer base and are investing in the significant opportunity created by smart meters.

“We are confident in our ability to continue growing our earnings and advancing our strategy through the year. We have attractive investment opportunities throughout our business, and while short-term uncertainty over the Capacity Market remains, we look forward to developing those opportunities in a disciplined fashion.”

Operational review

Pellet ProductionFocus on good quality pellets at lowest cost

  • Adjusted EBITDA of £21 million (2017: £6 million)
    • 64% increase in production to 1.351 million tonnes (2017: 0.822 million tonnes)
    • LaSalle Bioenergy (LaSalle) commissioned and fully operational – 0.5Mt pellet capacity – performing well
    • 10% reduction in cost per tonne
  • Biomass cost reduction initiatives – future benefits
    • Co-location and offtake agreement with Hunt Forest Products for low-cost sawmill residues at LaSalle
    • LaSalle rail spur – $10/tonne reduction in transport cost to Baton Rouge port facility – commissioning 2019
    • Relocation of administration from Atlanta to Monroe – greater operational focus and savings

Power GenerationOptimisation of portfolio, system support services and development of decarbonisation projects

  • Adjusted EBITDA of £232 million (2017: £238 million)
    • Impact of rail unloading outage and generator outage on one ROC(6) unit in Q1 2018
    • Lower margins from coal generation – coal and carbon costs
    • System support revenue of £79 million (2017: £88 million) – specific Black Start contract in Q1 2017
    • Suspension of Capacity Market – £7 million of revenues not accrued in Q4 2018
    • Optimisation of ROC generation, biomass operations and procurement of third party biomass volumes
    • Biomass earnings benefited from conversion of fourth unit and insurance proceeds on historic outages
  • Electricity output (net sales) down 8% to 18.3TWh (2017: 20.0TWh)
    • 75% of generation from biomass (2017: 65%)
  • Strong biomass availability – 91% (2017: 79%)
    • Reduced biomass generation in Q1 2018 offset by strong unit availability Q2-Q4 2018

B2B Energy SupplyProfitable business, growth in customer meters, challenging market environment

  • Adjusted EBITDA of £28 million (2017: £29 million)
    • 5% increase in customer meters to 396,000 (2017: 376,000)
    • Increase in bad debt and provisioning reflecting challenging environment
    • Mutualisation of renewable costs associated with competitor failure
    • Higher gas costs due to weather and mutualisation
    • Benefit of full year of Opus Energy (2017: 10.5 months)
    • 22% growth in gross profit to £143 million (2017: £117 million)
  • Development of flexibility and system support market
  • Continued investment in next generation systems to support growth and operational efficiency

Group financial information

  • Total basic earnings per share of 5.0 pence, includes write-off of coal-specific assets (£27 million) following fourth biomass unit conversion, costs associated with acquisition and on-boarding of ScottishPower Generation, restructuring costs in Opus Energy and Pellet Production (£28 million), and unrealised gains on derivative contracts (£38 million)
  • Tax credit of £6 million includes benefit of Patent Box claims – corporation tax rate of 10% on profits arising from the use of biomass innovation
  • Capital investment of £142 million
    • Maintaining operational performance (£55 million), enhancement (£40 million), strategic (£35 million) and other (£12 million)
  • Net debt of £319 million, including cash and cash equivalents of £289 million (31 December 2017: £367 million)

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‘3D’ to drive an energy revolution

Think of the phrase ‘3D’ and may people instantly think of video games, television or cinema, along with the special glasses you needed to watch it.

But another form of 3D is, I believe, going to be at the heart of the energy revolution which is rapidly gathering place.

The three Ds in this case are Data, Diversification and Decarbonisation. Together, they will transform the way businesses buy, use and sell their energy, help companies take control of their energy use and save money and also play a key part in our journey towards a zero carbon, lower cost energy future.

We’re already seeing some real innovations in the energy sector. Our trial of a storage battery with a customer of Opus Energy is an example, offering a farming business in Northampton the chance to sell stored energy generated by solar panels back to the grid at times of peak demand – a potential new revenue stream.

But other innovations and advances will maintain the pace of change and data will be at the core of this now the new generation of smart meters are being installed in businesses, revolutionising customer relationships with their energy suppliers.

The data from the new meters will finally give customers insight into where and when they use energy. Suppliers will have to work much more closely with customers to help them access new opportunities for cost savings, access to new markets and even new revenue streams.

An example would be a restaurant. With the data smart meters will provide, the restaurant’s supplier will be able to tell the owners how their energy use compares to the local competition and where improvements can be made.

The detail could go as far as identifying whether the restaurant’s equipment is older and less efficient, whether rivals have installed newer kit or whether other businesses are switching off their equipment earlier or using it at different, cheaper times.

Using energy during the peak weekday morning and early evening hours is often the most expensive time to do so. Data will give businesses the insight into how they can use energy more efficiently and when they use it, offering them the chance to avoid buying at peak times whenever possible and driving efficiencies.

This is why Haven Power’s trading team is now working closely with GridBeyond. The partnership allows our customers to trade the power they produce as well as optimise their operations to help balance the grid at times of peak demand. The really smart thing is that in doing so, customers are reducing their energy costs and making their operations more sustainable.

Trading desks at Haven Power’s Ipswich HQ

The way demand changes and is managed by businesses and consumers on a diversified power system will also be key. The business energy sector is already diversifying as many customers are able to generate and store their own power but the next step is for more customers to be paid to reduce their usage at peak times.

Think of a busy time for the National Grid – half time in the FA Cup Final or after the results in Strictly Come Dancing. Previously, the grid would have to pay a power station to ramp up generation to meet demand but these days, customers are paid to reduce demand for 30 minutes or so – in effect becoming a huge virtual power station.

This has happened for some time of course with larger, industrial customers but now, smaller companies can benefit from this too, thanks to the data and insight they will have from their smart meters. This empowers customers and puts them, not the energy companies, in control of the key decisions about their energy.

A close, advisory relationship between energy suppliers and their customers will become ever more important to make sure business can choose to avoid the high demand periods, and maximises use during the lower, cheaper times. In fact, I can see a time when customers will end up paying more for insight and advice than they do for the power they buy – and they’ll save money overall in doing so.

And if we get all this right, it will help drive one of the most important of the three Ds – decarbonisation.

Sustainability is increasingly becoming a primary focus for businesses and demand for renewable energy is growing because it is now cost-effective. That will help us in our drive towards a zero carbon future as more and more renewable energy comes onstream, though the UK will continue to need power generated from more flexible assets as well.

So there are huge opportunities out there to transform our energy landscape but they have to be viewed positively. The smart metering programme can be viewed as a regulatory burden or it can be seen as an opportunity. We take the positive view.

Likewise, batteries were once the preserve of massive companies only but now, as technology develops, they are becoming available for smaller firms too. The more we can innovative on a larger scale, the more the technology will work its way into smaller markets too, adding momentum to the energy revolution.

The opportunities are huge. If we get it right, so too will be the benefits to one of the biggest priorities of all – the work to decarbonise the UK and create the lower carbon future we all want.

Building a sustainable business

The UK energy sector is changing rapidly. The boundaries between users, suppliers and generators are blurring as energy users are choosing to generate their own energy and are managing their energy use more proactively while, conversely, generators are increasingly seeing users as potential sources of generation and providers of demand management.

“The UK is undergoing an unprecedented energy revolution with electricity at its heart – a transition to a low-carbon society requiring new energy solutions for power generation, heating, transport and the wider economy”

In that context, our Group’s purpose is to help change the way energy is generated, supplied and used for a better future. This means that sustainability, in its broadest sense, must be at the very core of what we do. Successful delivery of our purpose depends on all our people, across all our businesses, doing the right thing, every day. With the right products and services, we can go even further and help our customers make the right, sustainable energy choices.

As our businesses transform and we embrace a larger customer base, different generation technologies and operate internationally, the range of sustainability issues we face is widening and becoming more complex. At the same time, the range of stakeholders looking to Drax for responsible leadership on sustainability is increasing. The need for transparency is greater than ever, so our website’s sustainability section provides a comprehensive insight into the Group’s environmental, social and governance management and performance during 2017.

Some of the highlights include:

  • Carbon reduction: I am pleased that, in 2017, the proportion of our energy generation from renewable sources remained high. 65% of our generation during the year came from sustainable biomass and accounted for 15% of the country’s overall renewable generation. We maintained our rigorous and robust approach to ensure that we only ever use biomass that is sustainably produced and legally sourced.
  • People: Another key achievement was the roll out of our people strategy to 2020 – One Drax – which focuses on talent to deliver on our strategic and operational objectives.
  • Safety: The health and safety of all our employees and contractors is of paramount importance to Drax. While the Group’s safety incident rate remained on target in 2017, the fire at our biomass rail unloading facilities in December did cause an outage, with disruption lasting into 2018. It highlighted once again that the risks of generating using biomass must be mitigated through robust safety procedures and a risk-based plant investment and maintenance programme. Safety therefore remains at the centre of our operational philosophy and we are determined to do even better.
  • Customers: Our business to business (B2B) Energy Supply business received recognition for their dedication to customer service. Opus Energy won “Utilities Provider of the Year” at the British Small Business Awards 2017.

We initiated a process which would allow us to participate in the United Nations Global Compact (UNGC). We are committed to the initiative and its ten principles, which align with our culture of doing the right thing.

Our website’s sustainability section also sets out our commitment to achieving the United Nations’ Sustainable Development Goals through our operations, the services we deliver to our customers and in partnership with others.

Global ambitions and goals are important, but so too are our ambitions for our local and regional communities. As such, we have played a key role in the UK Northern Powerhouse Partnership, initiatives such as POWERful Women and a comprehensive programme of stakeholder engagement.

“Sustainability, in its broadest sense, must be at the very core of what we do”

Finally, I do not believe any organisation, however well intentioned, can get its commitment to sustainability perfect on its own and I am very keen for Drax to learn from people reading our website’s sustainability section. It sets out what we see as our achievements and aspects in which we believe we need to do better. I would like to invite any stakeholder with an interest to comment on what we’re doing and help us improve where we can. Feedback can be submitted at Contact us or via our Twitter account or Facebook page.

Read the Chief Executive’s Review in the Drax Group plc annual report and accounts

The sustainable development goals

In 2015, the United Nations launched 17 Sustainable Development Goals (SDGs) to end poverty, protect the planet and ensure prosperity for all by 2030. At Drax, improved performance has guided our business purpose for over four decades. We are committed to play our part in achieving the UN SDGs through our operations, the services we deliver to our customers and in partnership with others.

Drax Group has the most significant impact on the Global Goals listed below:

Affordable and clean energy

We provide 6% of the UK’s electricity and play a vital role in helping change the way energy is generated, supplied and used as the UK moves to a low-carbon future. In 2017, 65% of the electricity we produced came from biomass, rather than coal. Our B2B Energy Supply businesses encourage customers to be more sustainable, including through the provision of reliable, renewable electricity at no premium compared to fossil fuel-generated electricity.

Customers

Low Carbon

Decent work and economic growth

We directly employ over 2,500 people in the United Kingdom and United States and their health, safety and wellbeing remains our highest priority. Our B2B Energy Supply business offers energy solutions and value-added services to industrial, corporate and small business customers across the UK.

Society

Industry, innovation and infrastructure

We develop innovative energy solutions to enable the flexible generation and lower-carbon energy supply needed for a low-carbon future. We also innovate to improve the efficiency of our operations and increase our production capacity, notably in our biomass supply chain. Our B2B Energy Supply business offers “intelligent sustainability” and innovative products and services to our customers.

Customers

Low Carbon

Climate action

Our electricity generation activities are a source of carbon emissions. We are committed to helping a low-carbon future by moving away from coal and towards renewable and cleaner fuels, including biomass electricity generation and our planned rapid-response gas plants. We also help our business customers to be more sustainable through the supply of renewable electricity.

Low Carbon

Life on land

We source sustainable biomass for our electricity generation activities and engage proactively with our supply chain to ensure that the forests we source from are responsibly managed. We work closely with our suppliers and through tough screening and audits ensure that we never cause deforestation, forest decline or source from areas officially protected from forestry activities or where endangered species may be harmed.

Low Carbon

Sourcing

Environment

Partnerships for the goals

We engage with stakeholders regularly and build relationships with partners to raise our standards and maximise what can be achieved. Our collaborations align closely with our business, purpose and strategy.

Stakeholder Engagement

Society

Commitment to the UNGC

In 2017, we initiated a process which will allow us to participate in the United Nations Global Compact (UNGC) a global sustainability initiative and we will evidence progress next year. We made progress in preparing for participation outlined in the following sections:

Human rights

We seek to safeguard fundamental human rights for our employees, contractors and anyone that is affected by our business. We ensure that our suppliers apply high standards to protect human rights.

Modern Slavery Statement

Labour

We have policies and standards in place to safeguard our employees and contractors. We respect our employees’ rights in areas such as freedom of association and collective bargaining and we do not tolerate forced, compulsory or child labour. We are committed to providing a safe and healthy workplace for all our people and we strive to prevent discrimination and promote diversity in our workforce.

People

Environment

As a generator and supplier of electricity, we take our responsibility to protect the environment very seriously. We have transformed our generation business and are seeking to further reduce our environmental impact. We focus on reducing our emissions to air, discharges to water, disposal of waste, and on protecting biodiversity and using natural resources responsibly. We have invested heavily in lower-carbon technology as we continue to transition away from coal to renewable and lower-carbon fuels.

Customers

Low Carbon

Environment

Anti-corruption

We do not tolerate any forms of bribery, corruption or improper business conduct. Our “Doing the Right Thing” framework sets out the ethical principles our people must uphold, which is supported by the Group corporate crime policy. Our strict ethical business principles apply to all employees and contractors and we expect the same high standards from anyone we do business with.

Ethics and Integrity