Slide 1: Full Year Results
FULL YEAR RESULTS 12 Months Ended 31 December 2018 26 February 2019
Slide 2: Agenda
AGENDA Our Purpose Will Gardiner Operations and Business Review Will Gardiner Financial Review Andy Skelton Strategy Update Will Gardiner 2018 Full Year Results February 2019 2
Slide 3: Our Purpose
OUR PURPOSE ENABLING A ZERO CARBON, LOWER COST ENERGY FUTURE 2018 Full Year Results February 2019 3
Slide 4: Drax Group 2019
DRAX GROUP 2019 UK‘s largest source of renewable generation ENABLING A ZERO CARBON LOWER COST ENERGY FUTURE 12% of UK‘s renewable power in 2018 UK‘s 3rd largest energy generator Including ScottishPower Generation Multi-site, multi-technology portfolio 6.5GW capacity • 2.6GW biomass • 1.3GW coal • 0.
Slide 5: 2018 Performance Summary
2018 PERFORMANCE SUMMARY Group Good financial performance and cash returns for shareholders Transformational acquisition of ScottishPower Generation Significant growth opportunities Pellet Production Increased output and reduced cost Power Generation Good operational performance Conversion of fourth
Slide 6: Operations and Business Review
OPERATIONS AND BUSINESS REVIEW
Slide 7: Safety, Sustainability and ESG
SAFETY, SUSTAINABILITY AND ESG A LONG-TERM AND SUSTAINABLE BUSINESS MODEL Safety Environment TRIR 0.22 (2017: 0.27) Reduction in NOx, SOx and particulates Sustainability Carbon Disclosure Programme Biomass sustainability Social • Proven carbon abatement Supporting 17,500 UK jobs − 86% saving versus
Slide 8: Capacity Market
CAPACITY MARKET European Commission commenced formal investigation Opening decision to follow shortly Government to update on collection process Payments to be collected by energy suppliers Drax position Expect market to be re-instated as before or similar Retrospective payment for capacity 2018 Ful
Slide 9: Power Generation
POWER GENERATION FLEXIBLE, LOW CARBON AND RENEWABLE GENERATION SUPPORTING UK POWER SYSTEM Good operational performance Adjusted EBITDA Q1 outages mitigated by optimised generation and supply chain £232m (2017: £238m) Strong availability performance (April – December) • 97% availability on CfD unit (
Slide 10: Pellet Production
PELLET PRODUCTION TARGET GOOD QUALITY PELLETS AT LOWEST COST Strong growth in output and earnings Adjusted EBITDA 64% increase in pellet output £21m (2017: £6m ) 10% reduction in pellet cost LaSalle Bioenergy fully commissioned and performing well Pellet Production Relocation of administration from
Slide 11: B2B Energy Supply
B2B ENERGY SUPPLY GROWTH IN GROSS PROFIT IN A CHALLENGING YEAR Challenging conditions Gross Profit Mutualisation of renewable costs associated with competitor failure £143m Higher gas costs due to weather and mutualisation (2017: £117m) Adjusted EBITDA Increase in bad debt expense £28m Investment in
Slide 12: Financial Review
FINANCIAL REVIEW ANDY SKELTON CHIEF FINANCIAL OFFICER
Slide 13: Financial Highlights
FINANCIAL HIGHLIGHTS GOOD FINANCIAL PERFORMANCE, STRONG BALANCE SHEET Adjusted EBITDA(1) Net Debt December 2018(2) Net Debt to Adj. EBITDA(3) Net Cash From Operating Activities £250m £319m 1.3x £311m (2017: £229m) (December 2017: £367m) (31 December 2017: 1.6x) 2017: £315m Proposed Final Dividend To
Slide 14: Income Statement Highlights
FINANCIAL REVIEW INCOME STATEMENT HIGHLIGHTS Adjusted Results(1) 2018 £m 2017 £m Revenue 4,237 3,685 Adjusted EBITDA 250 229 Operating profit 76 47 Net finance cost (39) (42) Tax and other 5 (2) Profit after tax 42 3 Basic earnings per share (pence) 10.4 0.7 1) Adjusted Results are stated after adju
Slide 15: Adjusted EBITDA Bridge 2017 – 2018
ADJUSTED EBITDA BRIDGE 2017 – 2018 £m 250 200 250 229 150 100 2017 Increased Biomass Coal Capacity Other Gross Bad Other Corporate & 2018 earnings generation generation Market profit debt other Pellet Generation B2B Energy Corporate Production Supply 2018 Full Year Results February 2019 15
Slide 16: Net Debt
NET DEBT STRONG CASH GENERATION £m 400 300 200 367 319 100 0 31 Dec-17 Adjusted Working Capital Dividend and Debt Net 31 Dec-18 net debt EBITDA capital investment buy back service refinancing net debt & tax & other 2018 Full Year Results February 2019 16
Slide 17: Capital Investment
CAPITAL INVESTMENT 2018 Actual Key Projects Investment Maintenance Maintain operational performance £55m ScottishPower Generation - Enhancement Customer & IT platform and smart compliance £40m LaSalle rail spur Strategic U4 conversion and development of gas projects £35m Other £12m Total £142m 2019
Slide 18: Balance Sheet
BALANCE SHEET STRUCTURES IN PLACE TO SUPPORT GROWTH ScottishPower Generation acquisition (December 2018) Instrument Description Maturity £687m initial net consideration $300m Senior Secured Bonds 2025 £550m drawn from bank facility (January 2019) Notes Balance of consideration from existing cash £35
Slide 19: Capital Allocation
CAPITAL ALLOCATION COMMITMENT TO DISCIPLINED CAPITAL ALLOCATION Maintain credit rating Full Year Dividend Invest in growing core business activities £56m (2017: £50m) Pay a sustainable and growing dividend 2018 Final Dividend Return surplus capital to shareholders £34m (2017: £30m) Share Buy Back £5
Slide 20: Capacity Market
CAPACITY MARKET 2019 capacity payments Generation 2019 Expect market to be re-established as is or similar Retrospective payment for capacity Existing generation £21m Accounting treatment ScottishPower Generation £47m Recognised in accounts on receipt Adjusted EBITDA impact if no £68m capacity payme
Slide 21: Summary and Outlook
SUMMARY AND OUTLOOK Good financial performance Progress with strategy Increasing earnings visibility Strong balance sheet Development of options for investment in growth 2018 Full Year Results February 2019 21
Slide 22: Strategy Update
STRATEGY UPDATE
Slide 23: Enabling a Zero Carbon, Lower Cost Energy Future
ENABLING A ZERO CARBON, LOWER COST ENERGY FUTURE Absolute increase in demand for electricty Decarbonisation of heating and transport Globally 70-85% of electricity from intermittent renewables by 2050(1) >15% from complementary flexible sources – biomass, hydro, storage How Drax is helping Renewable
Slide 24: Biomass Has an Important Role to Play
BIOMASS HAS AN IMPORTANT ROLE TO PLAY ENABLING A ZERO CARBON, LOWER COST ENERGY FUTURE Growing demand for flexible, low carbon and renewable energy sources Biomass is an important source of system stability and security of supply Biomass is only large scale flexible renewable source of power “[BECCS
Slide 25: Biomass Optimisation and Cost Reduction
BIOMASS OPTIMISATION AND COST REDUCTION TARGETING <£50/MWH BY 2027 Area of Activity Description Biomass Self-supply (2019) Reduce feedstock cost Use a greater proportion of lower cost residues Sawmill co-location LaSalle rail spur Eliminate stages of production process Capacity expansion Reduce proc
Slide 26: Strategic Projects
STRATEGIC PROJECTS OPTIONS FOR INVESTMENT AND LONG-TERM GROWTH Energy Pellet Biomass Repower OCGT DHC II Long-term Projects Supply Production Cost Opportunities Reduction Technology Operating Up to 30% <£50/MWh 2 x 1.8GW 4 x 0.3GW 1 x 1.8GW BECCS(1) systems self-supply Carbon negative generation Des
Slide 27: 2019 Outlook and Priorities
2019 OUTLOOK AND PRIORITIES Integration of ScottishPower Generation Target 2x net debt to Adjusted EBITDA by end of 2019 Cost reduction and increased capacity in US Optimisation of generation portfolio Energy Supply investment in next generation systems Development of attractive options for growth 2
Slide 28: Questions
QUESTIONS
Slide 29: Appendices
APPENDICES 1. Acquisition of ScottishPower Generation 2. Group Income Statement 3. 2017 Restatement 4. Group Cash Flow Statement 5. Power Generation – EBITDA 6. Pellet Production – EBITDA 7. B2B Energy Supply – EBITDA 8. Consolidated EBITDA 9. Contracted Power Sales 10. Forward Commodity Prices 11.
Slide 30: ScottishPower Generation
SCOTTISHPOWER GENERATION FLEXIBLE, LOW CARBON AND RENEWABLE GENERATION PORTFOLIO Strategic fit Aligned with UK energy needs and Drax strategy A unique and complementary portfolio 2.6GW capacity • 0.4GW pumped storage • 0.1GW hydro • 2.1GW CCGT Strong financial attributes Initial net consideration £6
Slide 31: Group Income Statement
GROUP INCOME STATEMENT 2018 2017 In £m Adjusted Exceptional Total Adjusted Exceptional Total Revenue 4,237 (8) 4,229 3,685 (1) 3,684 Cost of sales (3,636) 46 (3,590) (3,140) (176) (3,316) Gross profit 601 38 639 545 (177) 368 Adjusted EBITDA 250 - - 229 - - Depreciation (129) - (129) (123) - (123) A
Slide 32: 2017 Restatement
2017 RESTATEMENT 2017 – Restatement Restatement 2017 – Previously – P&L – To Reserves Current Year In £m Reported Classification Disclosure - Adoption of IFRS 9 and restatements of 2017 results Revenue 3,685 (1) 3,684 Cost of sales (3,140) (176) - (3,316) Certain amounts have been reclassified on th
Slide 33: Group Cash Flow Statement
GROUP CASH FLOW STATEMENT In £m 2018 2017 Adjusted EBITDA 250 229 Working capital / other 86 147 Debt service (24) (47) Tax (1) (14) Net cash from operating activities 311 315 Capital investment – maintenance and enhancement (132) (127) Capital investment – strategic (428) Net refinancing (13) 257 D
Slide 34: Power Generation – Adjusted EBITDA
POWER GENERATION – ADJUSTED EBITDA In £m 2018 2017 Revenue(1) Power sales 1,903 1,789 ROC sales 981 627 CfD income 322 248 Ancillary services income 19 31 Fuel sales 52 8 Other income 55 17 3,332 2,720 Cost of sales Generation fuel costs (1,162) (1,100) Fuel sold (55) (7) ROC support 442 424 Carbon
Slide 35: Pellet Production – Adjusted EBITDA
PELLET PRODUCTION – ADJUSTED EBITDA In £m 2018 2017 Revenues 214 136 Cost of sales (149) (97) Gross profit 65 39 Operating costs (44) (33) Adjusted EBITDA 21 6 2018 Full Year Results February 2019 35
Slide 36: B2B Energy Supply – Adjusted EBITDA
B2B ENERGY SUPPLY – ADJUSTED EBITDA In £m 2018 2017 Revenue 2,242 1,999 Cost of sales Cost of power and gas purchases (952) (884) Grid charges (460) (436) Other costs (687) (562) (2,099) (1,882) Gross profit 143 117 Operating costs (115) (88) Adjusted EBITDA 28 29 2018 Full Year Results February 201
Slide 37: Consolidated Adjusted EBITDA
CONSOLIDATED ADJUSTED EBITDA Power B2B Energy Pellet Adjustments Consolidated 2018 £m Generation Supply Production Segment Adjusted EBITDA 232 28 21 (3) 278 Central costs (28) Consolidated Adjusted EBITDA 250 Power B2B Energy Pellet Adjustments Consolidated 2017 £m Generation Supply Production Segme
Slide 38: Contracted Power Sales
CONTRACTED POWER SALES Contracted at 20 February 2019 2019 2020 2021 Power sales (TWh) 16.3 8.9 3.4 - Fixed price power sales (TWh) 16.3 8.6 2.9 At an average achieved price (per MWh) £55.9 £53.3 £50.1 - Gas hedges (TWh) - 0.3 0.5 At an achieved price (per therm) - 55.9p 52.4p 2018 Full Year Results
Slide 39: Forward Commodity Prices
FORWARD COMMODITY PRICES EU ETS Carbon (€/t) Power Price (£/MWh) 30 80 25 70 20 60 15 50 10 5 40 0 30 Feb 17 May 17 Aug 17 Nov 17 Feb 18 May 18 Aug 18 Nov 18 Feb 19 Feb 17 May 17 Aug 17 Nov 17 Feb 18 May 18 Aug 18 Nov 18 Feb 19 Dec 2018 Dec 2019 Dec 2020 Win-17 Sum-18 Win-18 Sum-19 Win-19 Sum-20 API
Slide 40: Forward Spreads
FORWARD SPREADS Peak CSS (£/MWh) Peak DGS (£/MWh) Peak ROC Bark Spread (£/MWh) 20 20 80 60 10 10 40 20 0 0 0 Feb 17 Aug 17 Feb 18 Aug 18 Feb 19 Feb 17 Aug 17 Feb 18 Aug 18 Feb 19 Feb 17 Aug 17 Feb 18 Aug 18 Feb 19 Win-17 Sum-18 Win-18 Win-17 Sum-18 Win-18 Win-17 Sum-18 Win-18 Sum-19 Win-19 Sum-20 Su
Slide 41: Full Year Results
FULL YEAR RESULTS 12 Months Ended 31 December 2018 26 February 2019