Half year results for the six months ended 30 June 2024

Strong operational and financial performance, improved outlook for 2024 and £300m buyback

26 July 2024

Investors

RNS Number: 9278X
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Six months ended 30 JuneH1 2024H1 2023
Key financial performance measures
Adjusted EBITDA(1)(2)(3)(£ million)515417
Net debt(4)(£ million)1,0351,274
Adjusted basic EPS(1)(pence)65.646.0
Dividend per share (pence)10.49.2
Total financial performance measures
Operating profit (£ million)518392
Profit before tax (£ million)463338

Will Gardiner, CEO of Drax Group, said:

Will Gardiner, Drax Group CEO

“Drax has delivered a strong operational performance, playing an important role supporting the UK energy system with dispatchable, renewable power, keeping the lights on for millions of homes and businesses, while supporting thousands of jobs throughout our supply chain.

“As well as celebrating 50 years of operations in 2024, we are excited about the opportunities for Drax Power Station, including bioenergy with carbon capture and storage (BECCS). Both the National Grid ESO and the UK’s Climate Change Committee have recently reiterated that BECCS is important for the UK to achieve its decarbonisation goals.

“We look forward to working with the new UK Government to help grow the economy and take steps urgently to deliver a net zero electricity system by 2030. We believe that Drax and our partners across the Humber and Scotland can accelerate growth, create thousands of new jobs and channel billions in private investment into carbon capture and green energy projects, subject to the right government policies to support regional development plans.

“Outside of the UK, through our plans for global BECCS, we are continuing to develop opportunities to provide long-term, large-scale carbon removals and attractive opportunities for growth as part of a potentially trillion-dollar market.”

Financial highlights – strong operational and financial performance

  • Adj. EBITDA growth driven by renewable generation, pellet production and Industrial & Commercial (I&C)
  • Strong liquidity and balance sheet
    • £515 million of cash and committed facilities at 30 June 2024
    • £682 million of new facilities maturing 2027-2029 and repayment of £949 million(5) of shorter dated maturities
  • Sustainable and growing dividend – expected full year dividend up 12.6% to 26.0 p/share (2023: 23.1 p/share)
    • Interim dividend of 10.4 p/share (H1 2023: 9.2 p/share) – 40% of full year expectation
  • Up to £300 million two-year share buyback to commence in Q3 2024

Financial outlook

  • Full year 2024 expectations for Adj. EBITDA around the top end of analysts’ consensus estimates(6)
  • Outlook for 2025 Adj. EBITDA underpinned by a strong hedge book – fully hedged on RO units

Progress in H1 towards >£500 million EBITDA post 2027 from FlexGen & Energy Solutions and Pellet Production

  • FlexGen & Energy Solutions – targeting post 2027 recurring Adj. EBITDA of >£250 million
    • Continued development of three new OCGTs (c.900MW)
    • Sale of non-core SME customer meters
  • Pellet Production – targeting post 2027 recurring Adj. EBITDA >£250 million
    • Increased production, including Aliceville expansion
    • Pipeline of opportunities for sales in existing and new markets, including sustainable aviation fuel (SAF)

Biomass generation – Drax Power Station

  • Biomass generation – 2.6GW of flexible 24/7 renewable generation – important role in UK energy security
    • >£1 billion of est. post-tax operating cash flow (Jan 2024 to Mar 2027) underpinned by forward power hedges
    • Expect long-term value from bridging mechanism, BECCS and other opportunities
    • Bridging mechanism – targeting clarity in 2024, ongoing discussions with UK Government

Attractive opportunities to invest for long-term growth linked to energy transition and security of supply

  • Options for c.£4 billion of growth investment by 2030, with additional investment through 2030s
    • UK BECCS – targeting first unit (4Mt pa) by 2030 in line with UK ambition, with second unit (4Mt pa) to follow
    • Global BECCS – first potential site shortlisted, targeting operations from 2030
    • Pumped Storage – targeting 600MW expansion of Cruachan Power Station, FID 2026, operational by 2030

Capital returns

  • In line with our capital allocation policy and reflecting (a) a strong balance sheet, (b) investment requirements and (c) the mitigation of equity dilution expected to arise from share schemes, Drax will commence a share buyback programme for the purchase of up to £300 million of Drax shares over a two-year period, expected to begin in Q3 2024
  • Drax remains committed to its current capital allocation policy, which remains unchanged and will continue to assess its capital requirements in line with the current policy

Operational and financial review

£ millionH1 2024H1 2023(7)
Adj. EBITDA breakdown515417
Biomass generation393226
Pellet production6543
Pumped storage and hydro76141
Energy solutions - I&C3627
Energy solutions - SME(14)7
Global BECCS (20)(6)
Innovation, Capital Projects and Other(21)(20)

Pellet Production – supporting UK generation and sales to third parties

  • Improved operational and financial performance versus H1 2023
    • 2.0Mt of pellets produced (H1 2023: 1.9Mt) and improved margin
  • Development of new capacity
    • Aliceville expansion commissioned H1 2024 (130kt)
    • Longview pellet plant (450kt)

Generation – energy security with dispatchable renewable generation and system support services

  • Pumped storage and hydro – performance supportive of post 2027 Adj. EBITDA target
    • Strong system support earnings with lower forward power sales, as expected, compared to H1 2023
    • Progressing c.£80 million refurbishment and upgrade (40MW) of Cruachan underpinned by 15-year Capacity Market agreement (>£220 million)
  • Biomass generation – increased level of renewable generation and continuing system support role
    • 7.0TWh – c.32% increase on H1 2023 (5.3TWh)
    • Single major planned outage on track, expected to complete August 2024
  • Strong contracted power and renewables position
    • As at 22 July 2024 c.£3.1 billion of forward power sales between 2024 and 2026 on RO biomass, pumped storage and hydro generation assets – 25.8TWh at an average price of £120.7/MWh(8/9)
    • RO generation – fully hedged in 2024 and 2025, with >£1 billion of associated ROCs
    • A further 4.7TWh of CfD generation contracted for 2024/25
Contracted power sales 22 July 2024202420252026
Net RO, hydro and gas (TWh)(8)11.010.04.8
Average achieved £ per MWh(9)150.9107.179.7
CfD (TWh)3.90.8-

Energy Solutions (Customers) – renewable power sales and energy services

  • Strong underlying I&C performance
    • Increase in achieved margin offsetting small reduction in power sales – 7.6TWh (H1 2023: 8.0TWh)
    • Growing value from 100% renewable power products
    • Development of Energy Solutions business including system support services via demand response, and electric vehicle services following acquisition of BMM (August 2023)
  • SME business (Opus Energy)
    • Asset sale of majority of Opus Energy’s meter points (c.90,000) (expected to complete Q3 2024), reflecting focus on core I&C business
    • Employee consultation process underway to reflect reduced customer base

Other financial information

Capital investment

  • Capital investment of £147 million (H1 2023: £210 million)
  • 2024 FY expected capital investment of c.£360-400 million – growth, maintenance and other
    • Growth – c.£270 million, primarily the development of a new pellet plant (Longview), three new OCGTs (continuing to evaluate options for these projects) and refurbishment of Cruachan units 3 and 4
    • Maintenance – c.£100 million, including major planned outage at Drax Power Station

Cash and balance sheet

  • Cash generated from operations £400 million (H1 2023: £404 million)
  • Net working capital outflow (£93 million) inclusive of an increase in renewable certificate assets
  • Net debt at 30 June 2024 of £1,035 million (31 December 2023: £1,084 million), including cash and cash equivalents of £263 million (31 December 2023: £380 million)
  • £682 million of new loan facilities maturing 2027-2029 and repayment of £949 million(5) of shorter dated maturities
    • New c.£383 million term-loan facilities, maturing 2027-2029
    • New €350 million Eurobond, maturing 2029
    • Repaid £347 million of infrastructure facilities, maturing 2025-2026
    • Repaid $500 million US bond, maturing 2025
    • Repaid €106 million of €250 million Eurobond through tender offer, bond maturing 2025
    • Repaid £120 million collateral facility in July 2024

Notes:

  • (1) Financial performance measures prefixed with “Adjusted/Adj.” are stated after adjusting for exceptional items and certain remeasurements (including impairment of non-current assets, proceeds from legal claims, change in fair value of financial instruments and impact of tax rate changes). Adj. EBITDA and EPS measures exclude earnings from associates and amounts attributable to non-controlling interests.
  • (2) Earnings before interest, tax, depreciation, amortisation, other gains and losses and impairment of non-current assets, excluding the impact of exceptional items and certain remeasurements, earnings from associates and earnings attributable to non-controlling interests.
  • (3) In January 2023 the UK Government introduced the Electricity Generator Levy (EGL) which runs to 31 March 2028. The EGL applies to the three biomass units operating under the RO scheme and run-of-river hydro operations. It does not apply to the Contract for Difference (CfD) biomass or pumped storage hydro units. EGL is included in Adj. EBITDA and amounted to £114 million in H1 2024 (H1 2023: £35 million).
  • (4)  Net debt is calculated by taking the Group’s borrowings, adjusting for the impact of associated hedging instruments, and subtracting cash and cash equivalents. Net debt excludes the share of borrowings and cash and cash equivalents attributable to non-controlling interests. Borrowings includes external financial debt, such as loan notes, term-loans and amounts drawn in cash under revolving credit facilities. Net debt does not include financial liabilities such as pension obligations, trade and other payables, lease liabilities, working capital facilities linked directly to specific payables that provide short extension of payment terms of less than 12 months and balances related to supply chain finance. Net debt includes the impact of any cash collateral receipts from counterparties or cash collateral posted to counterparties.
  • (5) Includes repayment of £120 million collateral facility in July 2024.
  • (6) As of 17 July 2024, analyst consensus for 2024 Adj. EBITDA was £961 million, with a range of £881 – 996 million. The details of this consensus are displayed on the Group’s website. Consensus - Drax Global
  • (7) In 2023 a review of the mechanism for corporate recharges was performed, leading to a greater proportion being recharged to business units, primarily Generation. The remaining £21 million in H1 2024 is comprised of Innovation, Capital Projects and Other costs, including the development of options for pumped storage expansion and intercompany eliminations (H1 2023: £20 million). H1 2023 in the table shows the figures on the re-presented basis.
  • (8) Includes 2.9TWh of structured power sales in 2025 and 2026 (forward gas sales as a proxy for forward power), transacted for the purpose of accessing additional liquidity for forward sales from RO units and highly correlated to forward power prices.
  • (9) Presented net of cost of closing out gas positions at maturity and replacing with forward power sales.
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