Tag: Financial Reports

Notice of Full Year Results announcement, presentation and webcast arrangements

19 February 2020

Investors

RNS Number : 3963D
Drax Group PLC

Information regarding the results presentation meeting and webcast is detailed below.

Results presentation meeting and webcast arrangements

Management will host a presentation for analysts and investors at 9:00am (UK Time), Thursday 27 February 2020, at FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD.

Would anyone wishing to attend please confirm by e-mailing [email protected] or calling Rosie Corbett at FTI Consulting on +44 (0) 20 3727 1718

The meeting can also be accessed remotely via a live webcast, as detailed below. After the meeting, the webcast will be made available and access details of this recording are also set out below.

A copy of the presentation will be made available from 7:00am (UK time) on Thursday 27 February 2020 for download at: https://www.drax.com/investors/results-reports-agm/#investor-relations-presentations

Event Title: Drax Group plc: Full Year Results

Event Date: Thursday 27 February 2020, 9:00am (UK time)

Webcast Live Event Link: https://secure.emincote.com/client/drax/drax005

Start Date: Thursday 27 February 2020

Delete Date: Thursday 31 December 2020

Archive Link: https://secure.emincote.com/client/drax/drax005

For further information please contact [email protected] on +44 (0) 20 3727 1718

Website: www.drax.com

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.

END

Acquisition Bridge Facility refinancing completed

24 July 2019

Investors

Private placement

The £375 million private placement with infrastructure lenders comprises facilities with maturities between 2024 and 2029⁽²⁾.

ESG Facility

The £125 million ESG facility matures in 2022. The facility includes a mechanism that adjusts the margin based on Drax’s carbon emissions against an annual benchmark, recognising Drax’s continued commitment to reducing its carbon emissions as part of its overall purpose of enabling a zero-carbon, lower cost energy future.

Together these facilities extend the Group’s debt maturity profile beyond 2027 and reduce the Group’s overall cost of debt to below 4 percent.

Enquiries:

Drax Investor Relations:
Mark Strafford
+44 (0) 1757 612 491

Media:

Drax External Communications:
Matt Willey
+44 (0) 7711 376 087

Website: www.drax.com

Note

^{(1) Drax Corporate Limited drew £550 million under an acquisition bridge facility on 2 January 2019 used to partially fund the acquisition of ScottishPower Generation Limited for initial net consideration of £687 million. £150 million of the acquisition bridge facility was repaid on 16 May 2019.}

^{(2) £122.5 million in 2024, £122.5 million in 2025, £80 million in 2026 and £50 million in 2029.}

Half year results for the six months ended 30 June 2019

Investors

Six months ended 30 June	H1 2019	H1 2018 (restated)
Key financial performance measures
Adjusted EBITDA (£ million)	138	102
Net cash from operating activities (£ million)	197	112
Net debt (£ million)	924	366
Interim dividends (pence per share)	6.4	5.6
Adjusted basic earnings per share (pence)	2	1.6

Total financial performance measures
Operating profit (£ million)	34	12
Profit / (loss) before tax (£ million)	4	-11
Basic earnings / (loss) per share (pence)	1	-1

Financial highlights

Group Adjusted EBITDA up 35% to £138 million (H1 2018: £102 million)
- Includes £36 million from acquired Hydro and Gas assets
- Excludes £34 million of capacity payments (H1 2018: £6 million recognised) – expect Capacity Market to be re-established in 2019
Sustainable and growing dividend
- Interim dividend up 12.5% to £25 million (6.4 pence per share) (H1 2018: £22 million, 5.6 pence per share)
- Expected 2019 full year dividend up 12.5% to £63 million (15.9 pence per share) (2018: £56 million)
Good progress with refinancing of acquisition bridge facility, continue to expect completion during 2019
- On track to deliver 2x net debt / Adjusted EBITDA by year end, assuming reinstatement of the Capacity Market

Operational highlights

Integration of acquired Hydro and Gas assets progressing well
Strong system support performance – 92% increase in value from flexibility⁽⁵⁾ – £69 million (H1 2018: £36 million)
Progress with biomass cost reduction – LaSalle sawmill co-location and rail spur operational
52% reduction in reported carbon emissions – 128tCO₂/GWh (H1 2018: 265tCO₂/GWh)

Progress with strategic initiatives

Planned expansion of biomass self-supply – 0.35Mt of new capacity and lower cost biomass
Development of options for BECCS⁽⁶⁾ – potential for large-scale carbon negative generation at Drax Power Station
Planning approval for third OCGT⁽⁷⁾ received, expect fourth OCGT and coal-to-gas CCGT⁽⁸⁾approval in 2019

Outlook

Full year EBITDA and net debt expectations unchanged; remain subject to re-establishment of Capacity Market
- Generation – strong contracted position and system support services, higher H2 biomass generation
- Pellet Production – growth in H2 pellet volumes, focus on cost reduction and improved quality
- Customers (formerly B2B Energy Supply) – focus on increasing gross profit, reducing bad debt and cost to serve
Attractive investment options for growth: biomass capacity expansion, cost reduction and new gas generation

Will Gardiner, Chief Executive of Drax Group said:

Will Gardiner, CEO, Drax Group. Click to view high resolution photo.

“Drax Group has delivered strong profit and dividend growth in the first half of the year. Integration of our new Hydro and Gas generation assets is progressing well and the value the Group delivers from supporting the energy system has almost doubled. Drax is supporting British business with innovative new energy services and, despite challenging market conditions, our Customers business continues to grow. Our biomass cost reduction initiative and plans for expanded biomass self-supply are going well.

“Drax wholeheartedly supports the UK’s target of achieving net zero carbon emissions by 2050.”

“Reducing our greenhouse gas emissions by half in the past year underscores Drax’s commitment to this goal. With the right investment and regulatory framework we could go further and Drax could become the world’s first carbon negative power station – something the UK Committee on Climate Change recognises will be crucial.”

Operational review

Pellet Production – Focus on capacity expansion with good quality pellets at lowest cost

Adjusted EBITDA of £8 million (H1 2018: £10 million)
- Pellet production 0.65Mt (H1 2018: 0.66Mt) – weather-affected forestry activities and lower pellet production
Good progress with cost reduction initiatives
- Initiatives for run rate savings of £10/MWh on 0.45Mt pa from LaSalle pellet plant
  - Rail spur operational May 2019 – reduction in transport cost to Port of Baton Rouge
  - Co-location agreement with Hunt Forest Products for low-cost sawmill residues, now operational
  - Port of Baton Rouge rail agreement – increased rail capacity and lower costs for LaSalle and Morehouse
- Capacity expansion with run rate savings of £20/MWh on 0.35Mt
  - £50 million investment in 0.35Mt capacity increase at LaSalle, Morehouse and Amite, commissioning 2020/21
  - Pellet and hammermill upgrades to enable greater utilisation of low-cost sawmill residues and dry shavings

Power Generation – Flexible, low-carbon and renewable generation

Adjusted EBITDA of £148 million (H1 2018: £88 million)
- Contribution of Hydro and Gas assets following acquisition from ScottishPower – £36 million
- Strong system support performance – 92% increase in value from flexibility⁽⁵⁾ – £69 million (H1 2018: £36 million)
- Suspension of Capacity Market – £34 million of H1 revenue not accrued (H1 2018: £6 million recognised)
Biomass output (net sales) up 2% to 6.4TWh (H1 2018: 6.3TWh)
- ROC⁽⁹⁾ generation reprofiled to reflect weather-affected US biomass supplies – optimise within ROC cap and utilise fourth biomass unit to produce expected higher levels of ROC generation in H2 2019
Lower thermal output
- Coal – higher carbon costs, lower margins and reduced output – buy back opportunities for hedged sales
- Gas – Damhead Creek restricted hours ahead of inspection and Shoreham interim inspection brought forward

Customers – Continued growth in meters and margin per MWh, implementing structure to support long-term growth

Adjusted EBITDA of £9 million (H1 2018: £16 million)
- Increased operating costs associated with integration, restructuring and development of next generation system
- Weather-related reduction in energy consumption and increased focus on margin per MWh
- Continued growth in gross profit per MWh
- Growth in customer meters to 405,000 (H2 2018: 396,000)
- Improvement in bad debt £13 million (H1 2018: £18 million)
Progressing with integration of Opus and Haven
Focused on creation of scalable platform for growth, improved gross margin, reduction in bad debt and cost to serve

Group financial information

Tax rate benefits from Patent Box claims – Corporation Tax rate of 10% on profits arising from the use of biomass innovation
Capital investment of £60 million, full year expectations unchanged (£170 – £190 million)
- Includes 0.35Mt of new low-cost US pellet capacity (£10 million in 2019 and £40 million in 2020/21)
Net debt of £924 million, including cash and cash equivalents of £244 million (31 December 2018: £289 million)
- Expect 2x net debt to Adjusted EBITDA by end of 2019 subject to re-establishment of Capacity Market

Notes:

_{H1 2018 restated to reflect adoption of IFRIC guidance issued in respect of derivative contract accounting consistent with the approach taken in the 2018 Annual Report.}
_{Adjusted Results are stated after adjusting for exceptional items (including acquisition and restructuring costs, asset obsolescence charges and debt restructuring costs), and certain remeasurements.}
_{Earnings before interest, tax, depreciation, amortisation, excluding the impact of exceptional items and certain remeasurements.}
_{Borrowings less cash and cash equivalents (see note 12 to condensed consolidated interim financial statements).}
_{Balancing Market, Ancillary Services and lower-cost coals.}
_{BioEnergy Carbon Capture and Storage.}
_{Open Cycle Gas Turbine.}
_{Combined Cycle Gas Turbine.}
_{Renewable Obligation Certificate.}

Read full Report | View investor presentation | Sign up or watch webcast | Read press release

Full year results for the twelve months ended 31 December 2018

26 February 2019

Investors

^{RNS Number: 0765R}
^{Drax Group PLC}

	Adjusted⁽¹⁾		Total
Twelve months ended 31 December	2018	2017 Restated⁽²⁾	2018	2017 Restated⁽²⁾
Key financial performance measures
EBITDA (£ million)⁽³⁾	250	229
Profit / (loss) before tax (£ million)	37	5	14	(204)
Basic earnings / (loss) per share (pence)	10.4	0.7	5.0	(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 Production – Focus 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 Generation – Optimisation 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 Supply – Profitable 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)

View complete full year report

View analyst presentation

Register and watch 9am webcast of presentation

Half year results for the six months ended 30 June 2018 [PDF]

24 July 2018

Investors

Half year results for the six months ended 30 June 2018

Investors

RNS Number : 5142V
Drax Group PLC

Six months ended 30 June	H1 2018	H1 2017
Key financial performance measures
EBITDA (£ million)⁽¹⁾	102	121
Underlying earnings (£ million)⁽²⁾	7	9
Underlying earnings per share (pence)⁽²⁾	1.6	2.2
Interim dividends (pence per share)	5.6	4.9
Net cash from operating activities (£ million)	112	197
Net debt (£ million)⁽³⁾	366	372

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:

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.
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.
Borrowings less cash and cash equivalents.
Open Cycle Gas Turbine.
Renewable Obligation Certificate.

View complete half year report

View analyst presentation

Notice of half year results announcement

17 July 2018

Investors

RNS Number : 9363U
Drax Group PLC

Drax Group plc (“Drax”) confirms that it will be announcing its Half Year Results for the six months ended 30 June 2018 on Tuesday 24 July 2018.

Information regarding the results presentation meeting and webcast is detailed below.

Results presentation meeting and webcast arrangements

Management will host a presentation for analysts and investors at 9:00am (UK Time), Tuesday 24 July 2018, at JP Morgan, 60 Victoria Embankment, London, EC4Y 0JP.

Would anyone wishing to attend please confirm by e-mailing [email protected] or calling Christopher Laing at FTI Consulting on +44 (0)20 3319 5650.

The meeting can also be accessed remotely via a live webcast, as detailed below. After the meeting, the webcast will be made available and access details of this recording are also set out below.

A copy of the presentation will be made available from 7:00am (UK time) on Tuesday 24 July 2018 for download at: www.drax.com>>investors>>results-reports-agm>> #investor-relations-presentations or use the link https://www.drax.com/investors/results-reports-agm/#investor-relations-presentations

Event Title:	Drax Group plc: Half Year Results
Event Date:	Tuesday 24 July 2018
Event Time:	9:00am (UK time)

Webcast Live Event Link:	https://cache.merchantcantos.com/webcast/webcaster/4000/7464/16531/105055/Lobby/default.htm

Start Date:	Tuesday 24 July 2018
Delete Date:	Monday 15 July 2019
Archive Link:	https://cache.merchantcantos.com/webcast/webcaster/4000/7464/16531/105055/Lobby/default.htm

For further information please contact Christopher Laing on +44 (0)20 3319 5650.

Website:

www.drax.com

Chairman’s statement

Philip Cox, Chairman, Drax Group

21 March 2018

Annual report

In 2017 we made significant progress with the strategy we announced in December 2016.

First, we completed the acquisition of Opus Energy – a leading challenger brand in the UK Small and Medium-sized Enterprise (SME) energy market; second, we acquired a third biomass pellet plant (LaSalle Bioenergy), which significantly increases our pellet production capacity; and third, we continued to develop options for flexible gas generation at four sites around the UK.

We also began developing longer-term options for growth, with the exploration of coal-to-gas repowering at Drax Power Station, as we look to provide new sources of flexible generation backed up by long-term capacity contracts. To support our strategy, we completed a refinancing in May and announced a new dividend policy in June.

At the same time, we have continued to provide a significant amount of the UK’s renewable electricity. With confirmation of Government support for further biomass generation at Drax Power Station we plan to continue our work to develop a low-cost solution for a fourth biomass unit conversion, allowing us to provide even more renewable electricity, whilst supporting system stability at minimum cost to the consumer.

Opus Energy performed well, delivering on the plans we set out at the time of acquisition and, in North America, LaSalle Bioenergy is successfully commissioning. This performance alongside safety, sustainability and expertise in our core markets acts as a strong base from which the business can grow and deliver long-term sustainable value.

We have a major role to play in supporting the UK energy system, as it becomes increasingly ambitious in decarbonising, first the electricity sector and subsequently transport and heating. In doing so, through our flexible, low-carbon and customer- focused approach we aim to deliver higher quality earnings, with a reduction in commodity exposure alongside opportunities for growth.

Our people – employees and contractors – remain a key asset of the business. Their safety remains at the centre of our operational philosophy and we have performed well in this regard, although we continue to work to improve our performance across the Group.

Results and dividend

EBITDA in 2017 of £229 million was significantly ahead of 2016 (£140 million).

This increase was principally from producing high levels of renewable power from sustainable biomass. We also benefited from our growing B2B Energy Supply and Pellet Production businesses. Through these activities we are improving the visibility of our earnings.

In June we announced a new dividend policy. This policy is to pay a dividend which is sustainable and expected to grow as the implementation of the strategy generates an increasing proportion of stable earnings and cash flows. In determining the rate of growth in dividends the Board will take account of contracted cash flows, the less predictable cash flows from the Group’s commodity based business and future investment opportunities. If there is a build-up of capital the Board will consider the most appropriate mechanism to return this to shareholders.

At the 2017 half year results we confirmed an interim dividend of £20 million (4.9 pence per share) representing 40% of the full year expected dividend of £50 million (12.3 pence per share) (2016: £10 million, 2.5 pence per share). Accordingly, the Board proposes to pay a final dividend in respect of 2017 of £30 million, equivalent to 7.4 pence per share. In addition, the Board has decided to announce a £50 million share buy-back programme, which will take place during 2018, which is consistent with our capital allocation policy.

Corporate governance

In September, Dorothy Thompson CBE announced her intention to stand down as Group Chief Executive Officer (CEO). I would like to thank Dorothy for her enormous contribution to the Group over the last 13 years. During her tenure Dorothy led the transformation of the business and leaves the Group in a strong position with a clear strategy that lays the foundations for further success in a changing energy sector.

Dorothy is succeeded by Will Gardiner, who was previously Group Chief Financial Officer (CFO) and a key architect of the strategy. His appointment follows a thorough review of internal and external candidates and is a natural progression after two years working alongside Dorothy developing a strategy which I am confident will create significant benefits for all Drax’s stakeholders.

A process to appoint a permanent CFO is underway and Den Jones has been appointed as Interim CFO. Den is highly experienced, having previously served as CFO of both Johnson Matthey and BG Group. Drax remains committed to the highest standards of corporate governance. The Board and its committees play an active role in guiding the Company and leading its strategy. We greatly value the contribution made by our Non-Executive Directors (NEDs) and during a time of transition their role is especially important.

We indicated last year that we were seeking additional NEDs with experience in sustainability and energy supply to complement our already experienced Board. I am therefore delighted to welcome two new NEDs to the Drax Board. Firstly, David Nussbaum, whose in-depth knowledge of sustainability will support our continued focus in this area; and secondly, Nicola Hodson, whose experience in technology, business transformation and energy, will provide real value as the Group delivers its strategy.

Sustainability remains at the heart of the business, both the specific sustainability of biomass and more broadly the long-term sustainability of the business. As such I am pleased to note that alongside this year’s annual report and accounts the Group has published a comprehensive overview of our sustainability progress in 2017 on our website.

Full details of our corporate governance can be found on page 64 of the 2017 annual report.

Our people

As the Group grows I would also like to welcome colleagues from Opus Energy and our other developments. On-boarding is proceeding well and by working together in our common goal to help change the way energy is generated, supplied and used, we are creating real value for all stakeholders.

I must thank all the employees and contractors who have worked so hard to help the Group succeed in the last 12 months. It is through their skill, expertise and hard work that we are able to deliver our strategy for the business.

My sincere thanks to colleagues for their commitment and hard work.

It only remains for me to say that your Board remains totally committed to the complementary aims of delivering sustainable long-term value for the Group, and of helping our country build a low-carbon economy.

Read the Drax Group plc annual report and accounts 2017

Chief Executive’s review

Will Gardiner, Chief Executive Officer, Drax Group

Annual report

Market background

The UK is undergoing an energy revolution – a transition to a low-carbon economy requiring new energy solutions for power generation, heating, transport and the wider economy. Through our flexible, lower carbon electricity proposition and business to business (B2B) energy solutions, the Group is positioning itself for growth in this environment. More details can be seen on page 4 of our annual report.

Our strategy

Our purpose is to help change the way energy is generated, supplied and used.

Through addressing UK energy needs, and those of our customers, our strategy is designed to deliver growing earnings and cash flow, alongside significant cash returns for shareholders.

Our ambition is to grow our EBITDA to over £425 million by 2025, with over a third of those earnings coming from Pellet Production and B2B Energy Supply to create a broader, more balanced earnings profile. We intend to pay a sustainable and growing dividend to shareholders. Progression towards these targets is underpinned by safety, sustainability, operational excellence and expertise in our markets.

Summary of 2017

We made significant progress during 2017, but were below our expectations on the challenging scorecard targets we set ourselves in pellet production and biomass availability, the latter reflecting the significant incident we experienced on our biomass rail unloading facilities at the end of 2017, which extended into January 2018. Energy Supply performed well with Opus Energy in line with plan and Haven Power exceeding its targets. Through a combination of this performance and the progress of our strategy we have delivered EBITDA of £229 million, significantly ahead of 2016 (£140 million) and with each of our three businesses contributing positive EBITDA for the first time.

The Group scorecard is reported in full in the Remuneration Report (pp. 81-107 of our annual report) and the KPIs are also shown below. They reflect the diversity of our operations and our need to maintain clear focus on delivering operational excellence.

On a statutory basis we recorded a loss of £151 million, which reflects unrealised losses on derivative contracts, previously announced accounting policy on the accelerated depreciation on coal-specific assets as well as amortisation of newly- acquired intangible assets in Opus Energy. We also calculate underlying earnings, a profit after tax of £2.7 million, which excludes the effect of unrealised gains and losses on derivative contracts and, to assess the performance of the Group without the income statement volatility introduced by non-cash fair value adjustments on our portfolio of forward commodity and currency futures contracts.

During the year we refinanced our existing debt facilities, reducing our debt cost. We also confirmed a new dividend policy which will pay a sustainable and growing dividend (£50 million in respect of 2017), consistent with our commitment to a strong balance sheet and our ambitions for growth. At year end our net debt was £91 million below our 2x net debt to EBITDA target, providing additional headroom. There is more detail on our financial performance in the Group Financial Review on page 46 of our annual report.

In the US, our Pellet Production operations recorded year-on-year growth in output of 35%, with our first two plants now producing at full capacity. During the second half of 2017 we also completed the installation of additional capacity enabling our Morehouse and Amite facilities to handle a greater amount of residue material, supporting efforts to produce good quality pellets at the lowest cost.

As part of our target to expand our biomass self-supply capability we completed the acquisition of LaSalle Bioenergy (LaSalle) adding pellet production capacity. LaSalle commenced commissioning in November 2017 and due to its close proximity to our existing US facilities, once complete, will provide further opportunities for supply chain optimisation.

As in 2016, we benefited from the flexibility of self-supply. This often overlooked attribute of our supply chain enables us to manage biomass supply across the Power Generation business’ planned outage season and to benefit from attractively priced biomass cargoes in the short-term spot market.

In Power Generation, we experienced a significant incident on our biomass rail unloading facilities, including a small fire on a section of conveyor. We fully investigated the incident and following repairs over the Christmas period have now recommissioned the facility, with enhanced operating procedures. This is a timely reminder of the combustible nature of biomass and the need for strong controls and processes to protect our people and assets.

Our biomass units continued to produce high levels of renewable electricity from sustainable wood pellets for the UK market – Drax produced 15% of the UK’s renewable electricity – enough to power Sheffield, Leeds, Liverpool and Manchester combined. In doing so, we are making a vital contribution to the UK’s ambitious targets for decarbonisation across electricity generation, heating and transport – an 80% reduction by 2050 vs. 1990 levels.

We benefited from the first year of operation of our third biomass unit under the Contract for Difference (CfD) scheme which provides an index-linked price for the power produced until March 2027. The unit underwent a major planned outage between September and November, with a full programme of works successfully completed.

The flexibility, reliability and scale of our renewable generation, alongside an attractive total system cost, means we are strongly placed to play a long-term role in the UK’s energy mix. To that end we continue to see long-term biomass generation as a key enabler, allowing the UK Government to meet its decarbonisation targets and the system operator to manage the grid.

The UK Government recently confirmed support for further biomass generation at Drax Power Station and we now plan to continue our work to develop a low-cost solution for a fourth biomass unit, allowing us to provide even more renewable electricity, whilst supporting system stability at minimum cost to the consumer.

Our heritage is coal, but our future is flexible lower-carbon electricity. We are making progress with the development of four new standalone OCGT plants situated in eastern England and Wales and our work to develop options for coal-to-gas repowering with battery technologies. If these options would be supported by 15-year capacity market contracts, providing a clear investment signal and extending visibility of contract-based earnings out to the late 2030s.

In B2B Energy Supply, we completed the acquisition of Opus Energy, a supplier of electricity and gas to corporates and small businesses. The transaction completed in February 2017 and Opus Energy has continued to operate successfully within the Group, achieving its targets and making an immediate and significant contribution to profitability. Alongside this good performance we have also implemented the operational steps necessary to realise further operational benefits of the acquisition, and we now source all of Opus’ power and gas internally.

Haven Power delivered a strong performance with the sale of large volumes of electricity to industrial customers. Through our customer focus and efficiencies, margins have improved and the business generated a positive EBITDA for the first time.

Together, our B2B Energy Supply business now has over 375,000 customer meters, making it the fifth largest B2B power supplier in the UK.

We are delivering innovative low-carbon power solutions, with 46% of our energy sold from renewable sources. As the power system transforms, we will be working closely with our customers to help them adapt to a world of more decentralised and decarbonised power. We see this as a significant opportunity for the Group in the medium to long term.

In October 2017 we completed the sale of Billington Bioenergy (BBE) to Aggregated Micro Power Holding (AMPH). Consideration for the transaction was £2.3 million, comprised of £1.6 million of shares in AMPH and £0.7 million of cash.

The sale of BBE is aligned with our strategy to focus on B2B energy supply. However, through our shareholding in AMPH, we will retain an interest in the UK heating market, whilst gaining exposure to the development of small-scale distributed energy assets.

Political, regulatory and economic background

We continue to operate in a changing environment. The full impact of the UK’s decision to leave the EU is still unknown.

The immediate impact on the Group was a weakening of Sterling and an associated increase in the cost of biomass, which is generally denominated in other currencies. Through our utilisation of medium-term foreign exchange hedges the Group protected the cash impact of this weakness. In 2017, Sterling has generally strengthened, and we have been able to extend our hedged position out to 2022 at rates close to those that we saw before Brexit.

In terms of UK energy policy, the Government’s main focus has been on what it sees as unfair treatment of domestic consumers on legacy standard variable tariff (SVT) contracts. SVT are not a common feature of the B2B market. At the microbusiness end of this market, which is closer in size to domestic, most of our customers are on fixed price products and are active in renewing contracts.

The UK Government’s response to its consultation on the cessation of coal generation by 2025 has confirmed an end to non-compliant coal generation by October 2025.

We believe our assets, projects and ability to support our customers’ electricity management will support the Government’s ambition to maintain reliability when coal generation ceases.

Running a resilient, reliable grid is not simply about meeting the power demand on the system; there are also system support services which are essential to its effective operation. As the grid decentralises and becomes dependent on smaller, distributed generation, the number of plants able to provide these services is reducing. Biomass generation, our proposed OCGTs and our repowering project would allow us to meet these needs, but this will not come for free. A reliable, flexible, low-carbon energy system will require the right long-term incentives.

In November 2017, the Government confirmed that the UK will maintain a total carbon price (the combined UK Carbon Price Support – CPS – and the European Union Emissions Trading Scheme – EU ETS) at around the current level. CPS has been the single most effective instrument in reducing the level of carbon emissions in generation and we continue to support the pricing of carbon, a view echoed in a report prepared for the UK Government by the leading academic Professor Dieter Helm.

Against this backdrop we continue to make an important contribution to the UK economy. According to a study published by Oxford Economics in 2016, Drax’s total economic impact – including our supply chain and the wages our employees and suppliers’ employees spend in the wider consumer-economy was £1.7 billion, supporting 18,500 jobs across the UK.

Safety, sustainability and people

The health, safety and wellbeing of our employees and contractors is vital to the Group, with safety at the centre of our operational philosophy. We also recognise the growing need to support the wellbeing of our employees and their mental health.

During the year we continued to use Total Recordable Injury Rate (TRIR) as our primary KPI in this area. Performance was positive, at 0.27, but we expect this to improve in the coming year.

The incident at our biomass rail unloading facilities in December did not lead to physical injuries but was nonetheless a significant event and caused disruption into 2018.

We consequently launched an incident investigation to ensure our personal and process safety management procedures are robust.

To promote greater awareness around wellbeing we have embedded this in our new people strategy and expect to focus more energy and resources on this important area during 2018.

Strong corporate governance is at the heart of the Group – acting responsibly, doing the right thing and being transparent. As the Group grows the range of sustainability issues we face is widening and recognising the importance of strong corporate governance, we have published a comprehensive overview of our sustainability progress in 2017 on our website. This also highlights future priorities to broaden our approach to sustainability and improved reporting of environment, social and governance (ESG) performance. We have also completed the process which allows us to participate in the UN Global Compact (UNGC) – an international framework which will guide our approach in the areas of human rights, labour, environment and anti-corruption.

During 2017 we published our first statement on the prevention of slavery and human trafficking in compliance with the UK Modern Slavery Act. We have added modern slavery awareness to our programme of regular training for contract managers and reviewed our counterparty due diligence processes.

We have continued to maintain our rigorous and robust approach to biomass sustainability, ensuring the wood pellets we use are sustainable, low-carbon and fully compliant with the UK’s mandatory sustainability standards for biomass. The biomass we use to generate electricity provides a 64% carbon emissions saving against gas, inclusive of supply chain emissions. Our biomass lifecycle carbon emissions are 36g CO₂ / MJ, less than half the UK Government’s 79g CO₂ / MJ limit.

Our people are a key asset of the business. Through 2017 we developed a new people strategy. The strategy focuses on driving performance and developing talent to deliver the Group’s objectives. We have established Group-wide practices, including a career development and behaviour framework focused on performance and personal development.

Research and innovation

A key part of our strategy is to identify opportunities to improve existing operations and create options for long-term growth. To that end we have established a dedicated Research and Innovation (R&I) team led by the Drax engineers who delivered our world-first biomass generation and supply chain solution.

We are actively looking at ways to improve the efficiency of our operations, notably in our biomass supply chain.

Biomass is our largest single cost and as such we are focused on greater supply chain efficiency and the extraction of value from a wide range of low-value residue materials.

In B2B Energy Supply we are using our engineering expertise to help offer our customers value-adding services and products which will improve efficiency and allow them to optimise their energy consumption.

In the following sections we review the performance of our businesses during the year.

Performance review: Pellet Production

Our pellets provide a sustainable, low-carbon fuel source – one that can be safely and efficiently delivered through our global supply chain and used by Drax’s Power Generation business to make renewable electricity for the UK. Our manufacturing operations also promote forest health by incentivising local landowners to actively manage and reinvest in their forests.

Operational review

Safety remains our primary concern and we have delivered year-on-year reduction in the level of recordable incidents.

Output at our Amite and Morehouse pellet plants increased significantly, although was below our target for the year.

We have remained focused on opportunities to improve efficiencies and capture cost savings as part of our drive to produce good quality pellets at the lowest possible cost. We still have more work to do in this area to optimise quality and cost, as our performance was below target for the year.

As part of our plans to optimise and improve operations we added 150k tonnes capacity at our existing plants, bringing total installed capacity to 1.1 million tonnes and increasing the amount of lower cost sawmill residues we are able to process and used in our pellets.

CASE STUDY

Low-cost, high-impact capacity increase

By-products of higher value wood industries, such as sawdust from sawmills, offer a low-cost source of residues for use in our pellet production process and during 2017 we added an additional 150k tonnes of capacity at our pellet plants to allow us to use more of this material. By investing in giant hydraulic platforms known as ‘truck dumps’, operators at Amite and Morehouse can unload a 50-foot truck carrying either sawdust or wood chips and weighing 60 tonnes in less than two minutes, increasing processing capacity, reducing the cost of processing and increasing the use of lower cost residues.

Find out more: www.drax.com/truckdumps and www.drax.com/sustainability/sourcing

At our Baton Rouge port facility greater volumes of production from our facilities drove higher levels of throughput with 17 vessels loaded and dispatched during the year (2016: 11 vessels).

In April, in line with our strategy to increase self-supply, we acquired a 450k tonne wood pellet plant – LaSalle Bioenergy (LaSalle). Commissioning of the plant began in November 2017 and we expect to increase production through 2018. LaSalle is within a 200-mile radius of our existing facilities. By leveraging the locational benefits of these assets we aim to deliver further operational and financial efficiencies.

CASE STUDY

Locational benefits of Gulf cluster

The location of our operations allows us to leverage benefits of multiple assets and locations for operational efficiencies

All sites within 200-mile radius

Operational efficiencies

Common plant and joint strategic spare parts
Maximise reliability, minimise capital outlay
Flexibility through outage cycle
Human capital

Shared logistics to Baton Rouge

Rail and road
Increased port throughput

Complementary fibre sourcing

Optimisation of supply between plants

Find out more: www.draxbiomass.com

Financial results

There was a significant improvement in 2017, with EBITDA of £5.5 million (2016: £6.3 million negative EBITDA), driven by increasing volumes of wood pellets produced and sold to the Power Generation business. Sales of pellets in the year ending 31 December 2017 totalled £136 million, an increase of 84% over 2016.

Gross margin increased, reflecting higher production volumes. Raw fibre procurement, transportation and processing comprised the majority of cost of sales and as such this remains an important area of focus and an opportunity for the business. Through incremental investment in plant enhancements we expect to see further benefits from efficiencies and greater utilisation of lower cost residues.

Total operating costs have increased, reflecting an increase in operations at Amite, Morehouse and the Port of Baton Rouge, alongside the addition of LaSalle.

We acquired LaSalle for $35 million and have invested an additional $27 million as part of a programme to return the unit to service.

Pellet Production financial performance

	2017 £m	2016 £m
Revenue	135.7	73.6
Cost of sales	(96.7)	(55.5)
Gross profit	39.0	18.1
Operating costs	(33.5)	(24.4)
EBITDA	5.5	(6.3)

Key performance indicators

Area	KPI	Unit of measure	2017	2016
Operations	Fines at disport	%	9.6	7.6
Operations	Output	,000 tonnes	822	607
Financial	Variable cost/tonne	$/tonne	77	82

Looking ahead

Through 2018 we expect to continue to deliver growth in EBITDA from our existing assets. Our focus is on the commissioning of LaSalle alongside opportunities for optimisation and efficiencies in our processes, to deliver good quality pellets at the lowest cost.

We remain alert to market opportunities to develop further capacity as part of our self-supply strategy.

Performance review: Power Generation

Drax Power Station remains the largest power station in the UK (almost twice the size of the next largest). During the year the station met 6% of the UK’s electricity needs, whilst providing 15% of its renewable electricity, alongside important system support services.

With an increase in intermittent renewables and a reduction in the responsive thermal generation historically provided by coal, the system of the future will require capacity which is reliable, flexible and able to respond quickly to changes in system demand and provide system support services. These long-term needs inform our biomass generation and the development of options for investment in gas – Open Cycle Gas Turbines (OCGTs) and coal-to-gas repowering.

STRATEGY IN PROGRESS

Gas power station development

We are developing options for four new OCGT gas power stations, two of which already have planning permission and could be on the system in the early 2020s, subject to being awarded a capacity agreement.

A high-tech new control room at Drax Power Station will allow engineers to have real time remote control of our OCGT assets via a fibre-optic cable network. Able to fire up from cold and produce power in minutes rather than hours, our OCGTs will help maintain system security as intermittent renewable sources of power increase and older thermal plants close.

Investment case

Option to develop 1.2GW of new OCGT gas
Investment decisions subject to 15-year capacity agreement
Multiple revenue streams, with high visibility from capacity contract
Low capital and operating cost
Attractive return on capital
Broader generation asset base and location

Find out more: www.drax.com/about-us/#our-projects

Regulatory framework

In October the Government published its Clean Growth Plan, setting out its plans for delivery of its legally binding target to reduce 2050 carbon emissions by 80% versus 1990 levels across electricity generation, heating and transport. This reinforces the Drax proposition – flexible, reliable, low-carbon electricity.

In November the Government updated its intentions regarding the future trajectory of UK Carbon Price Support (CPS), indicating that the total cost of carbon tax in the UK (the total of CPS and the EU Emissions Trading Scheme) would continue at around the current level (the tax is currently set at £18/tonne) whilst coal remains on the system.

We believe that CPS has been the single most effective instrument in reducing carbon emissions from generation and that having an appropriate price for carbon emissions is the right way to provide a market signal to further reduce emissions in support of the UK’s long-term decarbonisation targets.

The UK Government has now confirmed an end to non-compliant coal generation by 2025. We support this move subject to an appropriate alternative technology being in place. With this in mind we have continued to develop options for our remaining coal assets to convert to biomass or gas, to provide the reliable, flexible capacity which we believe will be required to manage the increasingly volatile energy system of the future.

Most recently with confirmation of Government support for further biomass generation at Drax Power Station we plan to continue our work to develop a low-cost solution for a fourth biomass unit, accelerating the removal of coal-fired generation from the UK electricity system, whilst supporting security of supply.

Generation capacity and system support

2017 saw the first full year of operation of our biomass unit under the Contract for Difference (CfD) mechanism, which provides index-linked revenues for renewable electricity out to 2027.

Our other biomass units are supported by the Renewable Obligation Certificate (ROC) mechanism which, similar to the CfD, is also index-linked to 2027. This acts as a premium above the price of power we sell from these units. We sell power forward to the extent there is liquidity in the power markets which, combined with our fuel hedging strategy, provides long-term earnings and revenue visibility.

Lower gas prices, higher carbon costs and the continued penetration of intermittent renewables have kept wholesale electricity prices subdued.

With increasing levels of intermittent renewables we are continuing to see opportunities to extract value from flexibility – short-term power and balancing market activity, the provision of Ancillary Services and the value achieved from out-of-specification fuels. To capture value in this market we continue to focus resource on optimising availability and flexibility of both coal and biomass units. This whole process requires a high level of teamwork between the operational and commercial teams across the Group to capture and protect value.

Over the period 2017 to 2022 we expect to earn £90 million from a series of one-year capacity market contracts for our coal units, demonstrating that they still have a role to play. The first of these contracts commenced in October 2017, adding £3 million to EBITDA.

Lastly, we continue to source attractively priced fuel cargoes – out-of-specification coals and distressed cargoes, which help keep costs down for the business and consumers. We do this for both coal and biomass. This is a good example of how our commercial and operational teams work together to identify opportunities to create value for the business, as these fuels typically require more complex handling processes.

You can follow the market and see prices at electricinsights.co.uk

STRATEGY IN PROGRESS

Repowering away from coal

Options for Drax Power Station to operate into the late 2030s and beyond moved up a gear in 2017 with the development of an option to repower two coal units to gas. Drax gave notice of the nationally significant infrastructure project to the Planning Inspectorate in September 2017. One of the units could be eligible for the capacity market auction planned for December 2019.

Local community consultations began in November 2017 and continued in February 2018 on options including up to 3.6GW of new gas generation capacity, a gas pipeline and 200MW of battery storage in line with Government plans to end non-compliant coal generation by 2025 and Drax Group’s strategy of playing a vital role in the future energy system.

Find out more: repower.drax.com