https://www.drax.com/wp-content/uploads/2020/02/Drax-2019-FYR-27-February-2019.pdf
Full year results [PDF]
Tag: investors
Full year results for the twelve months ended 31 December 2019
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)
RNS Number : 2763E
| Twelve months ended 31 December | 2019 | 2018 |
|---|---|---|
| Key financial performance measures | ||
| Adjusted EBITDA (£ million) (1)(2) | 410 | 250 |
| Net cash from operating activities (£ million) | 413 | 311 |
| Net debt (£ million) (3) | 841 | 319 |
| Total dividends (pence per share) | 15.9 | 14.1 |
| Adjusted basic earnings per share (pence) (1) | 29.9 | 10.4 |
| Total financial performance measures | ||
| Operating profit (£ million) | 62 | 60 |
| Profit after tax (£ million) | 1 | 20 |
| Basic earnings per share (pence) | 0.1 | 5 |
Financial highlights
- Group Adjusted EBITDA up 64 percent to £410 million (2018: £250 million)
- Includes £114 million from acquired hydro and gas generation assets (2019 guidance of £90-110 million)
- Strong cash generation and balance sheet
- Net cash from operating activities up 33 percent to £413 million (2018: £311 million)
- 9x net debt to Adjusted EBITDA adjusted to reflect Capacity Market payments received in January 2020
- Refinancing of hydro and gas generation assets acquisition facility completed, includes ESG CO2-linked facility and infrastructure private placement extending to 2029 – interest rates below three percent
- Sustainable and growing dividend up 13 percent to 15.9 pence per share (2018: 14.1 pence per share)
- Final dividend of 9.5 pence per share (2018: 8.5 pence per share)
Engineer planning work near Cruachan Power Station dam and reservoir
Operational highlights
- Reduction in US self-supply pellet cost – $161/tonne(4) (2018: $166/tonne(4))
- Strong system support performance – 63 percent increase in value from flexibility(5) – £129 million (2018: £79 million)
- Integration of acquired hydro and gas generation assets complete
- 47 percent reduction in reported carbon emissions – 2.4Mt(6) (2018: 4.5Mt(6))
Engineer working at Rye House Power Station in Hertfordshire
Progress with strategic initiatives – building a long-term future for sustainable biomass
- Clear plan to reduce US costs and expand capacity – $35/t (£13/MWh(7)) saving on 1.85Mt by 2022
- Targeting five million tonnes of self-supply at £50/MWh(7) by 2027 from expanded sources of sustainable biomass
- BECCS(8) – development of technology options – proven and emerging technology options for at-scale carbon negative generation at Drax Power Station
- End of coal operations will support further reduction in CO2 emissions and lower cost operating model for biomass
Innovation engineer inspecting CCUS incubation area BECCS pilot plant at Drax Power Station, 2019
Outlook – 2020
- Strong contracted forward power sales of 15.8TWh at £53.9/MWh and high proportion of non-commodity revenues
- Evaluating attractive investment options for growth: biomass cost reduction and capacity expansion
Will Gardiner, CEO of Drax Group said:
“Drax has delivered a strong set of full-year results following the successful integration of new hydro and gas generation assets and made good progress with its strategic initiatives to build a long-term future for sustainable biomass and be the leading provider of power system stability. Drax achieved these results while still delivering a 47 percent reduction in its carbon emissions compared with the previous year.”
Drax Group CEO Will Gardiner in the control room at Drax Power Station.
“And today, Drax has also taken a significant step towards its ambition to be carbon negative by 2030 and help the UK achieve its net zero target by ending coal generation ahead of the Government’s target.
“This moves Drax and the UK closer to meeting their climate targets, while continuing to provide the flexible and reliable renewable power that millions of British homes and businesses rely on.
“Drax remains fully committed to the regions where it operates and with the right regulatory and investment framework is well positioned to deliver its plans for Yorkshire and the Humber. Using bioenergy with carbon capture and storage at Drax would anchor a new zero carbon cluster that could help protect thousands of jobs and create new opportunities for clean growth in the north and throughout the UK.”
Operational review
Woodchips and sawmill residue at Drax LaSalle Bioenergy in Louisiana, September 2019
Pellet Production – focus on capacity expansion with good quality pellets at lowest cost
- Adjusted EBITDA up 52 percent to £32 million (2018: £21 million)
- Pellet production up four percent to 1.41Mt (2018: 1.35Mt)
- Cost of production down three percent to $161/tonne(4) (2018: $166/tonne(4))
- Weather-affected forestry activities in H1 leading to reduced low-cost input fibre, offset by cost reduction initiatives and stronger output in H2
- Delivering a programme of cost reduction initiatives – targeting $35/t (£13/MWh(7)) on 1.85Mt by 2022
- Projects delivered in 2019 with further benefits in 2020
- LaSalle Bioenergy – improved rail infrastructure, woodyard decommissioning and sawmill co-location
- Ongoing saving from 2018 relocation of HQ from Atlanta to Monroe
- Savings from projects to be delivered in 2020-2022
- 0.35Mt capacity expansion (LaSalle, Morehouse and Amite), sawmill co-locations and woodyard decommissioning (Morehouse and Amite), increased use of dry shavings, improved logistics and other operational enhancements
Engineers inspect generator in Drax Power Station turbine hall, 2019
Power Generation – flexible, low-carbon and renewable generation
- Adjusted EBITDA up 76 percent to £408 million (2018: £232 million)
- £114 million of Adjusted EBITDA from acquired hydro and gas generation assets (guidance of £90-110 million)
- Strong system support performance – 63 percent increase in value from flexibility(5) to £129 million (2018: £79 million)
- Good commercial availability across the portfolio – 88 percent (2018: 87 percent)
- £78 million of Capacity Market agreements (2018: £6 million) following re-establishment of the market
- Biomass output (net sales) down three percent to 13.4TWh (2018: 13.8TWh)
- H1 – ROC(9) generation reprofiled to reflect weather-affected US biomass supplies
- H2 – record biomass output in November and December 2019 reflecting excellent operational availability
- Coal – Four percent of portfolio generation but with incremental value from buy back of forward power sales
- Gas – Damhead Creek restricted hours ahead of inspection and Shoreham interim inspection brought forward
Opus Energy employees holding meeting in Northampton, 2019
Customers – growth in margin per MWh and customer meters
- Adjusted EBITDA of £17 million (2018: £28 million)
- 2019 includes £8 million of restructuring costs (£6 million exceptional item in 2018)
- Growth in gross profit per MWh – focus on customer value over volume (MWh) – £6.7/MWh vs. 6.6/MWh
- Six percent growth in customer meters to 419,000 (2018: 396,000)
- Improvement in bad debt charge – £18 million (2018: £31 million)
- Investment in restructuring to drive future earnings growth
Other financial information
- Tax rate benefits from Patent Box claims – corporation tax of 10% on profits arising from investment in innovation
- Capital investment of £172 million
- Includes 0.35Mt of new low-cost US pellet capacity (£10 million in 2019 and £40 million in 2020)
- Net debt of £841 million, including cash and cash equivalents of £404 million (31 December 2018: £289 million)
- 1.9x net debt to Adjusted EBITDA adjusted to reflect receipt of Capacity Market payments in January 2020
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End of coal generation at Drax Power Station
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)
RNS Number : 2747E
Following a comprehensive review of operations and discussions with National Grid, Ofgem and the UK Government, the Board of Drax has determined to end commercial coal generation at Drax Power Station in 2021 – ahead of the UK’s 2025 deadline.
Commercial coal generation is expected to end in March 2021, with formal closure of the coal units in September 2022 at the end of existing Capacity Market obligations.
Will Gardiner, Drax Group CEO, said:
“Ending the use of coal at Drax is a landmark in our continued efforts to transform the business and become a world-leading carbon negative company by 2030. Drax’s move away from coal began some years ago and I’m proud to say we’re going to finish the job well ahead of the Government’s 2025 deadline.
“By using sustainable biomass we have not only continued generating the secure power millions of homes and businesses rely on, we have also played a significant role in enabling the UK’s power system to decarbonise faster than any other in the world.
“Having pioneered ground-breaking biomass technology, we’re now planning to go further by using bioenergy with carbon capture and storage (BECCS) to achieve our ambition of being carbon negative by 2030, making an even greater contribution to global efforts to tackle the climate crisis.
“Stopping using coal is the right decision for our business, our communities and the environment, but it will have an impact on some of our employees, which will be difficult for them and their families.
“In making the decision to stop using coal and to decarbonise the economy, it’s vital that the impact on people across the North is recognised and steps are taken to ensure that people have the skills needed for the new jobs of the future.”
Coal in front of biomass storage domes at Drax Power Station, 2016
Drax will shortly commence a consultation process with employees and trade unions with a view to ending coal operations. Under these proposals, commercial generation from coal will end in March 2021 but the two coal units will remain available to meet Capacity Market obligations until September 2022.
The closure of the two coal units is expected to involve one-off closure costs in the region of £25-35 million in the period to closure and to result in a reduction in operating costs at Drax Power Station of £25-35 million per year once complete. Drax also expects a reduction in jobs of between 200 and 230 from April 2021.
The carrying value of the fixed assets affected by closure was £240 million, in addition to £103 million of inventory at 31 December 2019, which Drax intends to use in the period up to 31 March 2021. The Group expects to treat all closure costs and any asset obsolescence charges as exceptional items in the Group’s financial statements. A further update on these items will be provided in the Group’s interim financial statements for the first half of 2020.
As part of the proposed coal closure programme the Group is implementing a broader review of operations at Drax Power Station. This review aims to support a safe, efficient and lower cost operating model which, alongside a reduction in biomass cost, positions Drax for long-term biomass generation following the end of the current renewable support mechanisms in March 2027.
While previously being an integral part of the Drax Power Station site and offering flexibility to the Group’s trading and operational performance, the long-term economics of coal generation remain challenging and in 2019 represented only three percent of the Group’s electricity production. In January 2020, Drax did not take a Capacity Market agreement for the period beyond September 2022 given the low clearing price.
Enquiries
Drax Investor Relations:
Mark Strafford
+44 (0) 7730 763 949
Media
Drax External Communications:
Ali Lewis
+44 (0) 7712 670 888
Website: www.drax.com
END
Notice of Full Year Results announcement, presentation and webcast arrangements
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
Capacity Market agreements for existing assets and review of coal generation
RNS Number : 6536B
T-3 Auction Provisional Results
Drax confirms that it has provisionally secured agreements to provide a total of 2,562MW of capacity (de-rated 2,333MW) from its existing gas, pumped storage and hydro assets(1). The agreements are for the delivery period October 2022 to September 2023, at a price of £6.44/kW(2) and are worth £15 million in that period. These are in addition to existing agreements which extend to September 2022.
Drax did not accept agreements for its two coal units(3) at Drax Power Station or the small Combined Cycle Gas Turbine (CCGT) at Blackburn Mill(4) and will now assess options for these assets, alongside discussions with National Grid, Ofgem and the UK Government.
A new-build CCGT at Damhead Creek and four new-build Open Cycle Gas Turbine projects participated in the auction but exited above the clearing price and did not accept agreements.
T-4 Auction
Drax has prequalified its existing assets(5) and options for the development of new gas generation to participate in the T-4 auction, which takes place in March 2020. The auction covers the delivery period from October 2023.
CCGTs at Drax Power Station
Following confirmation that a Judicial Review will now proceed against the Government, regarding the decision to grant planning approval for new CCGTs at Drax Power Station, Drax does not intend to take a Capacity Market agreement in the forthcoming T-4 auction. This project will not participate in future Capacity Market auctions until the outcome of the Judicial Review is known.
Enquiries:
Drax Investor Relations
Mark Strafford
+44 (0) 7730 763 949
Media:
Drax External Communications
Matt Willey
+44 (0) 0771 137 6087
Photo caption: Drax’s Kendoon Power Station, Galloway Hydro Scheme, Scotland
Website: www.drax.com
Investment programme in biomass capacity expansion and cost reduction
Highlights
- Targeting biomass self-supply capacity of five million tonnes by 2027
- 1.5 million tonnes of existing capacity, plus 0.35 million tonnes of low-cost capacity announced at the 2019 half year results
- Evaluating options for a further three million tonnes over the next seven years
- Supports target to reduce biomass cost by c.30 percent to c.£50/MWh
- Targeting returns significantly in excess of the Group’s cost of capital
- Trading update – in-line with expectations
- Acquired assets performing strongly
- Capacity Market restored and included in 2019 Adjusted EBITDA(1)
Will Gardiner, Drax Group CEO, said:
“Drax’s purpose is to enable a zero-carbon lower cost energy future. We believe sustainable biomass has a long-term critical role to play. That’s why we plan to supply 80 percent of our biomass from our own sources – a significant increase on the 20 percent we currently self-supply. Supplying more of our own biomass will cut costs and reduce supply chain risks, ensuring our biomass power generation remains viable in the long term. When combined with carbon capture it will also enable negative emissions, helping the UK on its path to net zero by 2050.”
Will Gardiner, CEO, Drax Group. Click to view/download in high res.
Capital Markets Day
Drax is today hosting a Capital Markets Day for investors and analysts.
Will Gardiner and his management team will update on how the Group is delivering on its purpose. The day will outline the significant opportunities Drax sees in growing its biomass supply and renewable generation businesses.
Investment in biomass to increase capacity and reduce cost
As a part of the Group’s key strategic objective of building a long-term future for sustainable biomass, Drax remains focused on opportunities to reduce its cost of biomass to a level which is economic without subsidy in 2027.
These savings will be delivered through further optimisation of existing biomass operations and greater utilisation of low-cost wood residues; an expansion of the fuel envelope to incorporate other renewable fuels and; a significant expansion of self-supply capacity.
Drax is targeting five million tonnes of self-supply capacity by 2027 (1.5 million today, plus 0.35 million tonnes in development), with greater scope for operational leverage and cost reduction. Drax will continue to work with its current suppliers to develop its portfolio.
At the 2019 half year results, Drax announced an investment in low-cost capacity at its existing three sites in the US Gulf, adding 350k tonnes of new capacity by 2021. The capital cost is in the region of £50 million, enabling targeted fuel cost savings in excess of £15/MWh on the additional capacity once commissioned.
Drax is evaluating options to deliver an additional three million tonnes of capacity. These options are expected to deliver returns significantly in excess of the Group’s cost of capital, with strong cash flow generation and a fast payback.
These activities would enable Drax to develop an unsubsidised biomass generation business by 2027, with the option to service wood pellet demand in other markets – Europe, North America and Asia.
Biomass sustainability is at the heart of the Group’s activities and Drax has implemented industry leading processes which support this expansion, encourage forest growth and make a positive contribution to climate change.
Drax LaSalle BioEnergy wood pellet plant in Louisiana is now co-located with a sawmill. A new rail spur became operational at LaSalle earlier in 2019. Click to view/download.
Options for gas generation
Drax continues to see flexible gas generation as an enabler of greater renewable and low carbon generation, in addition to supporting the development of hydrogen.
Any investment decision would reflect Drax’s objective of delivering earnings visibility and be underpinned by a 15-year capacity agreement to support a low double-digit rate of return. Drax would consider a range of funding options, including partnerships, consistent with Drax’s balance sheet objective of around 2 x net debt to Adjusted EBITDA(1) over time.
Capital allocation and dividend
Drax remains committed to the capital allocation policy established in 2017.
Trading and operational performance
The performance of the assets acquired from Iberdrola in December 2018 has been strong, particularly the pumped storage business which has performed well, driven by the system support market. Drax reiterates the Adjusted EBITDA(1) guidance provided at the time of acquisition, of £90-£110 million in the 2019 financial year.
In July, Drax completed the refinancing of the acquisition bridge facility used to acquire these assets. These facilities now extend the Group’s debt maturity profile to 2029, adding an ESG(2) facility with a mechanism that adjusts the margin based on Drax’s carbon emissions against an annual benchmark. The Group’s cost of debt is now below four percent and below three percent on the new facilities, reflecting the Group’s reduced business risk. The Group continues to identify opportunities to optimise its balance sheet and cash flow.
During the summer, Drax completed major planned outages on two biomass units. Following a delayed return to service, the plan is to run all four ROC(3) units at high utilisation levels in the fourth quarter of 2019.
The outlook for coal generation remains challenging and Drax continues to monitor the situation with regards to future operation, noting that all unabated UK coal generation must close by 2025.
Following formal confirmation from the UK Government, Drax expects the Capacity Market to be re-instated shortly, with full retrospective payments made for the capacity provided. Capacity payments due to Drax for 2019 and since the suspension of the Capacity Market in 2018 are £75 million. Drax expects these to be included in 2019 Adjusted EBITDA(1), with cash settlement in January 2020.
These factors underpin the Group’s expectations for full year Adjusted EBITDA(1), which remain unchanged and around 2 x net debt to Adjusted EBITDA(1) when adjusted to reflect cash payment of retrospective capacity payments received in January 2020.
Capital Markets Day webcast and presentation material
The event will be webcast from 9.30am and the material made available on the Group’s website at the same time. Joining instructions for the webcast and presentation are included in the links below.
https://view-w.tv/3-1479-22819/en
https://www.drax.com/investors/capital-markets-day/
Notes:
(1) Earnings before interest, tax, depreciation, amortisation, excluding the impact of exceptional items and certain remeasurements.
(2) Environmental Social and Governance.
(3) Renewable Obligation Certificate.
Enquiries:
Drax Investor Relations:
Mark Strafford
Media:
Drax External Communications:
Matt Willey
Website: www.drax.com
END
RNS Number: 8192T
View announcement in PDF format
Reapproval of UK Capacity Market
Following formal confirmation from the UK Government, Drax expects the Capacity Market to be re-instated shortly, with full retrospective payments made for the capacity provided. Capacity payments due to Drax for 2019 and since the suspension of the Capacity Market in 2018 are £75 million. Drax expects these to be included in 2019 EBITDA.
Drax expects the decision will allow future Capacity Market auctions to take place in early 2020. Drax retains options for new gas generation, which could be developed subject to appropriate clearing prices in future Capacity Market auctions.
A link to the European Commission’s decision is provided below.
https://europa.eu/rapid/press-release_IP-19-6152_en.htm
Will Gardiner, Drax Group CEO said:
“This is great news for the UK energy system. The capacity market helps to ensure Britain has the flexible and reliable power generating capacity needed to support the economy as it continues to decarbonise, keeping the lights on at the lowest cost for millions of homes and businesses.
“We will be prequalifying a number of Drax’s flexible and reliable power stations, as well as some of our development projects, later this year with a view to participating in the capacity markets auctions in 2020.”
Enquiries:
Drax Investor Relations: Mark Strafford
+44 (0) 1757 612 491
Media:
Drax External Communications: Matt Willey
+44 (0) 203 943 4306
Website: www.drax.com
END
RNS Number : 0491R
Further statement in relation to the AGM vote on political donations
In the lead up to the 2019 AGM, the Company undertook initial consultation with major shareholders and received a variety of feedback on both the Resolution and the Company’s approach to engagement with regulators and policymakers including political parties and governments.
Following the AGM, the Board of Directors initiated further engagement to facilitate a clear understanding of the reasons underpinning the votes cast against the Resolution. This included writing to the Company’s largest shareholders and offering to discuss how the Company proposed to respond to points raised during the initial consultation and policy on stakeholder engagement. The Company is grateful to those shareholders that provided feedback at that time.
The Company regularly engages with regulators and policymakers in the UK, Europe and USA (including those associated with political parties and governments) to understand and contribute to discussions on a wide range of matters which are associated with our business and delivering increased value to our shareholders. This approach is detailed on pages 32 and 33 of the 2018 Annual Report as a fundamental aspect of our stakeholder engagement. Political and regulatory risk has been identified by the Board as one of the nine principal risks that the business faces. Activities of this nature are not designed to support any political party or to influence public support for a particular party and would not be thought of as political donations in the ordinary sense of those words.
Reflecting the feedback received from shareholders, it has been determined that within future Annual Reports additional disclosure will be provided. This will describe the forms of engagement that have taken place with regulators and policymakers in the financial year as well as additional disclosure regarding the oversight of that engagement. To assure shareholders of the governance associated with managing engagement and transparency, the Company has also developed and published a policy explaining how stakeholder engagement is undertaken, including oversight and associated reporting.
The term ‘political donation’ is widely defined in the Companies Act 2006 (“the Act”). For clarity, the Company has not made, and does not intend to knowingly make, political donations. The Company continues to believe it is in the best interests of the business and shareholders to renew the authority most recently granted at the 2019 AGM to avoid any inadvertent infringement of the Act.
Prior to 2019, the Company had proposed an authority to spend up to £50,000 under each of the three categories covered by the Act. At the 2019 AGM, Drax sought an authority to spend up to £100,000 under the same three categories which was approved by a majority of shareholders.Nonetheless and reflecting feedback received in connection with the Resolution, at the 2020 and future AGMs the Company will propose an authority to spend up to £100,000 in each of the three categories but will introduce an aggregate cap of £125,000.
Further explanation on these matters, and our ongoing engagement with shareholders, will be included in the 2019 Annual Report and notice of the 2020 AGM.
Enquiries:
Drax Investor Relations: Mark Strafford
+44 (0) 1757 612 491
Media:
Drax External Communications: Matt Willey
+44 (0) 1757 612 285
Acquisition Bridge Facility refinancing completed
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.
