Slide 1: 2022 Full Year Results
2022 Full Year Results 23 February 2023
Slide 2: Presenters
Presenters Presenters Will Gardiner Chief Executive Officer Andy Skelton Chief Financial Officer Drax 2022 Full Year Results Presentation 2
Slide 3: Agenda
Agenda • Future Positive • Operational Review • Financial Review • Strategy Update Drax 2022 Full Year Results Presentation 3
Slide 4: Forward Looking Statements
Forward Looking Statements This presentation may contain certain statements, expectations, statistics, projections and other information that are or may be forward- looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial
Slide 5: Our Purpose, Our People, Our Ambition
Our Purpose Enabling a zero carbon, lower cost energy future Our People Are valued members of a winning team with a worthwhile mission Our Ambition To be a carbon negative company by 2030 Drax 2022 Full Year Results Presentation 5
Slide 6: 2022 Highlights
2022 Highlights Strong financial and generation performance, progressing strategy to develop global opportunities for carbon removals Strong financial performance • 84% increase in Adjusted EBITDA • Leverage reduced to 1.6x Net debt to Adjusted EBITDA • 11.7% increase in dividend Optimisation of bio
Slide 7: Future Positive
Future Positive The need for urgent action to address climate change is widely recognised and the role which sustainable biomass can play is becoming increasingly appreciated By investing in positive climate, nature and people outcomes, Drax aims to deliver a wider range of ESG goals 7
Slide 8: Future Positive: Climate, Nature and People Positive
Future Positive Investing in climate, nature and people positive outcomes • >99% of generation from renewables(1) ESG credentials Climate Positive • >95% of Adjusted EBITDA from renewables(1) • >90% of capital investment 2023-2030 expected to be in renewable(1) projects • Exiting gas sales in Custom
Slide 9: Sustainable Biomass Sourcing
Sustainable Biomass Sourcing Forestry economics support sustainable sourcing • Sawlogs are the primary economic driver of commercial forestry A highly regulated and sustainable source of renewable energy – used in construction and manufacturing • Biomass typically uses low-grade material not merchan
Slide 10: Operational Review
Operational Review A strong performance utilising the Group’s flexible, vertically-integrated biomass supply chain and dispatchable generation assets to support UK security of supply and value creation for the Group 10
Slide 11: Pellet Production – Overview
Pellet Production – Overview BC and Alberta Highly diversified supply chain supporting flexible operations and security of supply 17 operational pellet plants with capacity of c.5Mt Access to three major North American fibre baskets • British Columbia, Alberta and US southeast Four deep water ports
Slide 12: Pellet Production – Operations
Pellet Production – Operations Flexible production and sales to support UK security of supply and value creation 56% increase in Adjusted EBITDA Adjusted EBITDA • 26% increase in production £134m Optimisation of supply chain supports value for Group (2021: £86m) • Flexible production to support gene
Slide 13: Pellet Production – Developments
Pellet Production – Developments Demopolis, Alabama Aliceville, Alabama Targeting 8Mt of production capacity by 2030 0.5Mt of new capacity commissioned through 2022 • New plants at Demopolis, Leola and Russellville • Acquisition of Princeton plant Princeton, BC Russellville, Arkansas FID on 0.6Mt of
Slide 14: Generation – Operations
Generation – Operations Adjusted System Biomass Strong renewable and system support performance EBITDA(2) support(3) availability(4) £696m £175m 87% Strong renewable performance (2021: £372m) (2021: £160m) (2021: 88%) • UK’s largest source of renewable power by output • >99% of generation from renew
Slide 15: Generation – Pumped Storage and Hydro
Generation – Pumped Storage and Hydro Strong system support and renewable performance Adjusted Generation(1) EBITDA Key drivers of performance 0.6TWh • Wide range of earnings opportunities – ancillary services, balancing £171m (2021: 0.5TWh) (2021: £68m) market, power market and capacity market • In
Slide 16: Customers & Drax Energy Solutions
Customers & Drax Energy Solutions Renewable power and decarbonisation services to high-quality I&C and Corporate customers Strong operational and financial performance Adjusted EBITDA Drax I&C power sales • • Continued improvement in Adjusted EBITDA Sale of forward hedged power not required by custo
Slide 17: Financial Review
Financial Review A strong performance utilising the Group’s flexible, vertically-integrated biomass supply chain and dispatchable generation assets to support UK security of supply and value creation for the Group Increased clarity on the Electricity Generator Levy Investment to support growth oppor
Slide 18: Financial Summary
Financial Summary Strong financial performance Total Cash and Cash Generated Net Debt Net Debt to Committed Facilities from Operations December 2022(3) Adjusted EBITDA Adjusted £698m (2021: £549m) £320m (2021: £354m) £1,206m (2021: £1,108m) 1.6x (2021: 2.8x) EBITDA(1) £731m Adjusted Basic Earnings P
Slide 19: Adjusted EBITDA Bridge
Adjusted EBITDA Bridge 84% increase in Adjusted EBITDA £m 103 20 800 241 20 700 59 600 500 48 400 731 300 200 398 100 0 2021 Pellet Biomass Pumped storage / Discontinued gas Customers Innovation, 2022 Adjusted EBITDA Production generation hydro generation and other capital projects Adjusted EBITDA a
Slide 20: Pellet Production
Pellet Production Increased volumes of production and shipments drove higher earnings 3.9Mt produced (2021: 3.1Mt), 4.7Mt shipped (2021: 3.2Mt) 6% production cost increase to $152/t (2021: $143/t) • Inflation impact on utility costs (>35%) and fuel surcharges (barge and rail transport to port (>20%)
Slide 21: Generation – Trading and Optimisation
Generation – Trading and Optimisation Optimisation of biomass generation to support UK security of supply Strong contracted power sales on ROC and Hydro 2023-2025 Contracted power sales • 23.3TWh contracted at £152.8/MWh 2023 2024 2025 17 February 2023 Net ROC, hydro and gas (TWh)(1/2) 12.4 9.0 1.9
Slide 22: Capital Investment
Capital Investment Investment to drive operational efficiency, strategic initiatives and growth 2022 actual Key areas Investment Maintenance Maintain operational performance £79m Enhancement Efficiency and operational improvements £27m Strategic and growth UK BECCS, biomass and OCGT(1) £127m Other H
Slide 23: Balance Sheet
Balance Sheet Increased liquidity and deleveraging while managing collateral Net Debt to Net Debt to £698m cash and Adjusted EBITDA requirements of higher power prices Adjusted EBITDA Maturity profile (ex collateral) committed 1.6x 1.3x facilities to 2030 (2021: 2.8x) (2021: 3.2x) Facilities in plac
Slide 24: Sources and Uses of Cash
Sources and Uses of Cash Investment funded by existing cash generation and Adjusted EBITDA growth Net debt to Adjusted EBITDA <2x in 2030, inclusive of impact of Electricity Generator Levy £3bn of strategic capital investments • Pellet plants, UK BECCS, Cruachan expansion • Investments backed by lon
Slide 25: Clear Capital Allocation Policy
Clear Capital Allocation Policy Implemented in 2017, designed to support strategy 1. Maintain credit rating 2. Invest in core business 4. Return surplus capital 3. Sustainable and growing beyond investment dividend requirements Drax 2022 Full Year Results Presentation 25
Slide 26: Strategy Update
Strategy Update Positioning Drax for growth opportunities linked to global renewable energy and decarbonisation initiatives Objective 1: to be a global leader in sustainable biomass pellets Objective 2: to be a global leader in carbon removals Objective 3: to be a UK leader in dispatchable, renewabl
Slide 27: Strategic Milestones in 2022
Strategic Milestones in 2022 Excellent progress in 2022 - Final investment decision on 0.6Mt of new capacity - Establishment of Tokyo field office - Establishment of European business development Pellet Production - Expansion of international affairs capability - Continued reduction in pellet produc
Slide 28: Growing Scientific Support for Carbon Removals
Growing Scientific Support for Carbon Removals BECCS has an important role to play All the illustrative mitigation pathways assessed in the IPCC’s latest report use significant volumes of CDRs, and specifically BECCS as a key tool for mitigating climate change. Globally between 0.5-9.5bn tonnes of C
Slide 29: Global Policies Supporting Increased Investment in Carbon Removals
Global Policies Supporting Increased Investment in Carbon Removals UK has an opportunity for leadership, but the US and Europe are moving fast Inflation Reduction Act (IRA) and Bipartisan Infrastructure Bill includes BECCS as an eligible technology • $369bn funding package for climate and green ener
Slide 30: Development of UK BECCS
Development of UK BECCS Drax Power Station – targeting 8Mt pa of carbon removals using BECCS by 2030, on track for FID in 2024 Good progress in 2022 2023 milestones Technology Technology • FEED study progressing well • Completion of FEED study • Early stage site preparation commenced • Coal “winter
Slide 31: A Global Leader in Carbon Removals
A Global Leader in Carbon Removals Ambition to deliver 4Mt pa of carbon removals outside of UK by 2030, with a primary focus on North America The US Inflation Reduction Act is creating an enlarged investment opportunity for BECCS and Drax aims to be a part of it Drax is developing a pipeline of proj
Slide 32: Progress with Global BECCS
Progress with Global BECCS Ambition to deliver 4Mt pa of carbon removals outside of UK by 2030, with a primary focus on North America US prioritised Options for BECCS • Political and regulatory support • Proximity to fibre New-build BECCS power stations • Geology and CCS infrastructure • >300MW each
Slide 33: Milestones for 2023
Milestones for 2023 - Development of project pipeline and options for expansion towards target of 8Mt pa by 2030 Pellet Production - New contracts for third-party supply, working towards target of 4Mt pa of third-party sales by 2030 - Development of opportunities for innovation and cost reduction -
Slide 34: Strategic Positioning
Strategic Positioning Strategic objectives closely aligned with climate solutions Attractive opportunities for long-term growth and value creation for stakeholders - Targeting 8Mt pa of pellet production capacity by 2030 Pellet Production - Targeting 4Mt pa of third-party pellet sales by 2030 Fully
Slide 35: 2022 Full Year Results
2022 Full Year Results 23 February 2023
Slide 36: Appendices
Appendices Group Adjusted EBITDA Electricity Generator Levy Group Income Statement – Continuing Operations Global BECCS Workstreams Group Income Statement – Adjusted Results Merchant Forward Commodity Prices – Continuing and Discontinued Operations Merchant Forward Carbon Prices Consolidated Adjuste
Slide 37: Group Adjusted EBITDA
Group Adjusted EBITDA High-quality, enduring earnings from a multi-technology portfolio and integrated supply chain 2022 2021 Business unit Assets Capacity Adjusted Adjusted EBITDA (£m) EBITDA (£m) 18 pellet plants and developments in >5MtMt Canada and US Pellet Production Access to five deep water
Slide 38: Group Income Statement – Continuing Operations
Group Income Statement – Continuing Operations 2022 2021 In £m Adjusted Exceptional Total Adjusted Exceptional Total Revenue 8,159 (384) 7,775 5,174 (86) 5,088 Cost of sales (6,838) 86 (6,752) (4,331) 134 (4,197) Gross profit 1,322 (298) 1,023 843 48 891 Operating and administrative expenses (543) -
Slide 39: Group Income Statement – Adjusted Results
Group Income Statement – Adjusted Results – Continuing and Discontinued Operations 2022 2021 In £m Continuing Discontinued Total Continuing Discontinued Total Revenue 8,159 - 8,159 5,174 52 5,226 Cost of sales (6,838) - (6,838) (4,331) (32) (4,363) Gross profit 1,322 - 1,322 843 20 863 Operating exp
Slide 40: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA – Continuing and Discontinued Operations Power Pellet Discontinued Customers Adjustments(1) Consolidated 2022 £m Generation Production Segment Adjusted EBITDA 696 - 134 26 (10) 845 Innovation, Capital Projects and Other (114) Consolidated Adjusted EBITDA 731 Power Pellet
Slide 41: Pellet Production – Adjusted EBITDA
Pellet Production – Adjusted EBITDA FOB total cost In £m 2022 2021 US$ 2022 2021 Revenues 803 450 Cost of sales ($m) 602 367 Cost of sales (502) (267) Operating costs ($m) 202 132 Gross profit 301 183 Total cost ($m) 804 499 Operating costs (167) (97) Third-party pass through volumes ($m)(1) (129) (
Slide 42: Generation – Adjusted EBITDA
Generation – Adjusted EBITDA – Continuing and Discontinued Operations In £m 2022 2021 System support and optimisation Revenue Power sales 5,603 3,274 £m 2022 2021 System support and optimisation 243 197 System support and optimisation ROC sales 1,278 881 System support and optimisation revenues 243
Slide 43: Customers – Adjusted EBITDA
Customers – Adjusted EBITDA In £m 2022 2021 Revenue 4,143 2,360 Cost of sales Cost of power and gas purchases (2,607) (1,098) Grid charges (731) (510) Other costs (647) (648) (3,985) (2,256) Gross profit 158 104 Operating costs (84) (82) Bad debt charge (48) (16) Adjusted EBITDA 26 6 Drax 2022 Full
Slide 44: Group Cash Flow Statement
Group Cash Flow Statement – Continuing and Discontinued Operations In £m 2022 2021 Adjusted EBITDA(1) 731 398 Working capital and other (411) (44) Cash generated from operations 320 354 Debt service and other interest (74) (60) Tax (39) 12 Net cash from operating activities 208 306 Capital investmen
Slide 45: Group Net Debt Bridge
Group Net Debt Bridge £m 1,400 55 1,200 407 1,000 800 79 39 74 600 1,108 175 1,206 400 731 200 0 31 Dec 2021 Adjusted Capital Debt Tax Equity Collateral(1) Working capital 31 Dec 2022 Net debt EBITDA expenditure service dividends payments & other Net debt & other paid interest Drax 2022 Full Year Re
Slide 46: Electricity Generator Levy
Electricity Generator Levy A levy on renewable and low-carbon generators Applies to the three biomass units operating under the Renewable Obligation scheme and run of river hydro operations The levy will not apply to Drax’s CfD biomass unit, pumped storage hydro and coal generation Structured as a l
Slide 47: Global BECCS Workstreams
Global BECCS Workstreams - Development of options for new-build BECCS plants, BECCS on existing assets and BECCS on a pellet plant Project Pipeline - Site location filtering, selection of site options and refinement of technical concepts - Development of a wider project pipeline to support opportuni
Slide 48: Merchant Forward Commodity Prices
Merchant Forward Commodity Prices Baseload Power Price (£/MWh) Peak Power Price (£/MWh) 650 750 600 700 550 650 500 600 450 550 500 400 450 350 400 300 350 250 300 200 250 200 150 150 100 100 50 50 0 0 Jan-21 Apr-21 Jul-21 Oct-21 Feb-22 May-22 Aug-22 Dec-22 Jan-21 Apr-21 Jul-21 Oct-21 Feb-22 May-22
Slide 49: Merchant Carbon Prices
Merchant Carbon Prices UKA Carbon (£/t) EU ETS Carbon (€/t) 120 120 110 110 100 100 90 90 80 80 70 70 60 60 50 50 40 30 40 20 30 10 20 0 10 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Jan-21 Apr-21 Jul-21 Oct-21 Feb-22 May-22
Slide 50: Merchant Forward Spreads
Merchant Forward Spreads Peak CSS (£/MWh) Peak DGS (£/MWh) Peak ROC Bark Spread (£/MWh) 220 500 750 200 675 180 400 600 160 525 140 300 450 120 375 100 200 300 80 60 225 100 40 150 20 - 75 - Jan-21 Apr-21 Jul-21 Oct-21 Feb-22 May-22 Aug-22 Dec-22 - Jan-21 May-21 Oct-21 Mar-22 Aug-22 Jan-23 Jan-21 Ap
Slide 51: 2022 Full Year Results
2022 Full Year Results 23 February 2023