RNS Number : 0962W
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)
- Robust trading and operational performance during the first three months of 2021
- Completion of acquisition of Pinnacle Renewable Energy Inc. (Pinnacle)
- Strong balance sheet and cash flows
- Continue to expect net debt to Adjusted EBITDA(1) of around 2 x by the end of 2022
- Continued focus on clean energy generation and a reduction in carbon emissions
- Commercial coal generation ended in March 2021, with full closure in September 2022
- Sale of existing gas generation assets in January 2021
- Sustainable and growing dividend
- Final dividend of 10.3 pence per share – subject to shareholder approval at AGM
- Total dividends of 17.1 pence per share, 7.5% y-o-y growth
Will Gardiner, Drax Group CEO, said:
“In the first quarter of 2021 we delivered a robust trading and operational performance, alongside steps to further decarbonise the business and support our flexible and renewable generation strategy. These include the end of commercial coal generation, the sale of our gas power stations and just last week we acquired leading Canadian biomass producer Pinnacle Renewable Energy Inc.
“The acquisition of Pinnacle positions Drax as the world’s leading sustainable biomass generation and supply business. This advances our strategy to increase self-supply, reduce our own cost of biomass production and create a long-term future for sustainable bioenergy, which will pave the way for the development of negative emissions from Bioenergy with Carbon Capture and Storage (BECCS). BECCS at Drax would make a significant contribution to the UK reaching its new target to cut carbon emissions by 78% by 2035.”
Trading, operational performance and outlook
The trading and operational performance of the Group has been robust in the first three months of 2021. Full year expectations for the Group remain underpinned by continued good operational availability for the remainder of 2021.
Drax’s generation portfolio has performed well with good asset availability and optimisation across its portfolio, including a strong system support performance from Cruachan (pumped storage), underpinning a solid financial performance.
During the summer Drax will, as previously announced, undertake planned maintenance on its CfD(2) biomass unit, including a high-pressure turbine upgrade to reduce maintenance costs and improve thermal efficiency, contributing to lower generation costs for Drax Power Station.
In March 2021 Drax secured Capacity Market agreements for its hydro and pumped storage assets worth around £10 million for the delivery period October 2024 to September 2025.
Drax also secured 15-year agreements for three new 299MW system support Open Cycle Gas Turbine (OCGT) projects in England and Wales. As the UK transitions towards a net zero economy it will become increasingly dependent on intermittent renewable generation. As such, fast response system support technologies, such as these OCGTs, are increasingly important in enabling the UK energy system to run more frequently and securely on intermittent renewable generation. Drax is continuing to evaluate options for these projects including their potential sale.
Pellet Production has performed well with good production and cost reduction plans on track.
On 13 April 2021, Drax completed its acquisition of Pinnacle. The acquisition advances the Group’s biomass strategy by more than doubling its sustainable biomass production capacity, significantly reducing its cost of production and adding a major biomass supply business, underpinned by long-term third-party supply contracts.
The Group’s enlarged supply chain will have access to 4.9 million tonnes of operational capacity from 2022. Of this total, 2.9 million tonnes are available for Drax’s self-supply requirements in 2022 (increasing to 3.4 million tonnes in 2027).
The acquisition positions Drax as the world’s leading sustainable biomass generation and supply business alongside the continued development of its ambition to be a carbon negative company by 2030, using BECCS.
Pinnacle’s performance in the first three months of 2021 was in line with Drax’s expectations through the acquisition process. Drax will update on full year expectations including Pinnacle at its half year results on 29 July 2021.
The Group’s I&C(3) supply business performed well. It continues to provide a route to market for Drax’s power and renewable products to high credit quality counterparties as well as opportunities to complement the Group’s system support capabilities.
The SME(4) supply business continued to be affected by the ongoing Covid-19 restrictions in the first three months of 2021. Drax is continuing to explore operational and strategic options for this segment of the business.
As at 31 March 2021, Drax had cash and total committed facilities of £801 million.
Drax will retain Pinnacle’s existing debt facilities within the enlarged Group’s capital structure but will consider opportunities to optimise its balance sheet with lower cost sources of debt.
Drax continues to expect net debt to Adjusted EBITDA to return to its long-term target of around 2 x by the end of 2022.
Generation contracted power sales
As at 16 April 2021, Drax had 25.7TWh of power sales contracted at £49.0/MWh as follows:
|Fixed price power sales (TWh)||15.0||7.5||3.2|
|Contracted % versus 2020 full year output (5)||101%||51%||22%|
|Of which CfD (TWh) (6)||3.2||-||-|
|At an average achieved price (£ per MWh)||49.2||48.6||49|
Capital allocation and dividend
The Group remains committed to the capital allocation policy established in 2017, through which it aims to maintain a strong balance sheet; invest in the core business; pay a sustainable and growing dividend and return surplus capital beyond investment requirements to shareholders.
A final 2020 dividend of 10.3 pence per share was proposed in the 2020 results on 25 February 2021 and, subject to shareholder approval at today’s Annual General Meeting, will be paid on 14 May 2021.
An interim dividend of 6.8 pence per share was paid on 2 October 2020, making the total 2020 dividend 17.1 pence per share, an increase of 7.5% compared to 2019.
Drax Investor Relations: Mark Strafford
Drax External Communications: Ali Lewis