Slide 1: Full Year Results
Full Year Results 12 Months Ended 31 December 2017 27 February 2018
Slide 2: Agenda
Agenda Operations and business review Will Gardiner, CEO Financial review Den Jones, Interim CFO Delivering the strategy Will Gardiner, CEO 2
Slide 3: 2017 Summary
2017 Summary Excellent progress in delivering the strategy: continuing to transform the Group into an integrated low-carbon energy company Strong financial and operational performance Sustainable and growing dividend with return of capital to shareholders 3
Slide 4: Milestones
Milestones Acquisition and on-boarding of Opus Energy Acquisition and commissioning of LaSalle Bioenergy Strategic Government support for fourth biomass unit Development of options for new gas generation 64% increase in Group EBITDA and strong cash generation Refinancing complete, supporting strateg
Slide 5: Drax Group 2025 EBITDA in Excess of £425m
Drax Group 2025 EBITDA in Excess of £425m High quality growing earnings across all areas of operation B2B Energy Supply Pellet Production Leading UK energy supplier At least 30% self-supply EBITDA >£80m(1) EBITDA >£75m(1) Power Generation Key part of UK infrastructure EBITDA >£300m(1) Underpinned by
Slide 6: Excellent Progress in 2017
Excellent Progress in 2017 Group EBITDA £229m, investment in strategy and shareholder returns B2B Energy Supply Group EBITDA Leading UK energy supplier £229m EBITDA £29m Pellet Production Total Dividend At least 30% self-supply 12.3p/share EBITDA £6m (£50m) Net cash from operating activities £315m P
Slide 7: Operations and Business Review
Operations and Business Review
Slide 8: Safety and Sustainability
Safety and Sustainability Safety Total Recordable Injury Rate 0.4 Strong Group performance 0.3 Sustainability Biomass sustainability 0.2 – Proven carbon abatement(1) 0.1 – 86% saving versus coal 0 – 64% saving versus gas 2015 2016 2017 – Well established governance and audit process Carbon Life Cycl
Slide 9: Pellet Production
Pellet Production Focus on good quality pellets at lowest cost US operations performing well EBITDA £12m increase in EBITDA 35% growth in pellet production to 0.8m tonnes £6m (2016: £(6)m) – Producing nameplate capacity on consistent basis Pellets capacity, production and self-supply target (mt) Low
Slide 10: Power Generation
Power Generation Large scale renewable and optimisation of generation assets Strong financial performance EBITDA £64m increase in EBITDA – Majority of revenues from long-term renewable power generation £238m (2016: £174m) – 9% of Group revenues from coal power sales – Fuel hedging supports cost stab
Slide 11: B2B Energy Supply
B2B Energy Supply Profitable business with growth in sales and customer meters Good operational and financial performance EBITDA £33m increase in EBITDA 12% growth in customer meter points(1) £29m (2016: £(4)m) 46% of sales renewable(2) Continued investment in next generation IT systems Power Sales
Slide 12: Financial Review
Financial Review
Slide 13: Financial Highlights
Financial Highlights Den Jones – Interim CFO EBITDA Final Dividend Net Cash From Operating Activities £229m 7.4p (£30m) £315m (2016: £140m) (2016 : 0.4p, £2m) (2016: £191m) Underlying EPS(1) Total Dividend Net Debt December 2017(2) 0.7p 12.3p (£50m) £367m (2016: 5.0p) (2016 : 2.5p, £11m) (December 2
Slide 14: Financial Review
Financial Review Income statement 2017 £m 2016 £m Revenue 3,685 2,950 EBITDA 229 140 Depreciation, amortisation and disposals (182) (113) EBIT 47 27 Net finance cost(1) (42) (6) Tax (2) - Underlying profit after tax(2) 3 21 Cash and balance sheet 2017 £m 2016 £m Net cash from operating activities 31
Slide 15: EBITDA Bridge 2016 – 2017
EBITDA Bridge 2016 – 2017 Strong improvement in EBITDA in all areas of operation 250 12 (20) 33 229 64 200 150 140 £m 100 50 0 2016 EBITDA Power Generation B2B Energy Supply Pellet Production Other 2017 EBITDA 15
Slide 16: Increasing Earnings Visibility
Increasing Earnings Visibility Reducing commodity exposure Renewable power sales and support mechanisms CfD revenues to 2027 ROC revenues to 2027 Associated power sales Optimisation and system support Balancing market, commercial buy-backs, ancillary services Capacity payments 2017-2022 Development
Slide 17: Net Cash Flow
Net Cash Flow Strong cash generation In £m 2017 2016 Working capital movement – £147m ROCs – £112m EBITDA 229 140 – Reduction in ROCs generated and held on Working capital / other 147 63 balance sheet – transition from ROC to CfD Debt service (47) (21) support Tax (14) 9 Receivables – £61m – Haven P
Slide 18: Investment – 2017
Investment – 2017 Maintenance Maintain operational performance £69m Increased pellet capacity at existing plants Information systems upgrade Opus Energy office consolidation Improvement Strategic spares £64m U4 conversion trial Research & Innovation Strategic Acquisition of Opus Energy £415m Acquisi
Slide 19: Financial Structures in Place to Support Growth
Financial Structures in Place to Support Growth Refinancing completed Maintain credit rating 2017 net debt / Supportive of trading strategy EBITDA 1.6x Robust to low points in business cycle Rating reiterated by S&P and Fitch Working capital management £550m high yield Commitment to capital discipli
Slide 20: 2017 Summary
2017 Summary Strong financial performance Growth in EBITDA and cash generation Strong cost and cash management Financial structure in place to support growth Investment in strategy Sustainable and growing dividend Return of capital to shareholders 20
Slide 21: Delivering the Strategy
Delivering the Strategy
Slide 22: Changing UK Energy System
Changing UK Energy System Transition to a low-carbon economy First step is low-carbon power generation UK energy Requires a more flexible electricity system revolution Ultimately low-carbon power will need to be economic without support Beyond power, the low-carbon economy will require new energy so
Slide 23: Changing UK Energy System
Changing UK Energy System Increasing need for ancillary services and system support Change in generation mix Change in Generation Capacity 2012 – 2025(2) 55 Coal, older gas and nuclear approaching end of 45 operational life 35 Increase in intermittent renewables – wind and solar 25 15 GW 5 Reduction
Slide 24: Development of Options for a Coal-free Future
Development of Options for a Coal-free Future Flexible, low-carbon generation and system support Fourth biomass unit Supportive of Government energy policy Low capital cost Optimise generation across all ROC units Open Cycle Gas Turbine Four x 299MW developments Two sites with permits – participatio
Slide 25: B2B Energy Supply Growth
B2B Energy Supply Growing to become the leading B2B supplier, differentiated from incumbents Growth In-sourcing power and gas Benefit of 12 months of Opus 2017 EBITDA 2017 2018 2019 2020 2021 Time 2022 2023 2024 2025 2026 2027 Grow Transform Innovate 25
Slide 26: Clear Capital Allocation Policy
Clear Capital Allocation Policy Commitment to capital discipline Maintain credit rating Invest in core business activities 2017 net debt / Pay a sustainable and growing dividend EBITDA 1.6x Commitment to return capital to shareholders 2017 full year dividend of £50m £50m share buy back 26
Slide 27: Outlook
Outlook 2018 priorities and outlook Pellet Production B2B Energy Supply - Commissioning of LaSalle Bioenergy - Continued growth in customer meters - Development of options for optimisation and - Operational efficiencies and customer service efficiencies - Investment in systems to support growth and
Slide 28: Appendices
Appendices 1. Definitions 2. Strategy and Competitive Advantage 3. Drax Model Summary 4. Financial Assumptions 5. IAS 39 Treatment 6. Group Income Statement 7. Group Underlying Earnings 8. Group Cash Flow Statement 9. Power Generation – Gross Profit 10. B2B Energy Supply – Gross Profit 11. Pellet Pr
Slide 29: 1: Definitions
Appendix 1: Definitions Abbreviation Name Description API2 is the main reference price (including cost, freight and insurance) for steam coal to be delivered to Amsterdam, Rotterdam and Antwerp. API4 is the reference price for steam coal to be delivered free on board API2/4/6 (“FOB”) to Richards Bay
Slide 30: 2: Strategy and Competitive Advantage
Appendix 2: Strategy and Competitive Advantage Area Strategy Competitive Advantage • Target at least 30% self-supply • Expertise in US markets and logistics Pellet Production • Low cost good quality pellets • Expand to support low carbon future and • World leader in flexible renewable energy Power G
Slide 31: 3: Drax Model Summary
Appendix 3: Drax Model Summary Higher quality earnings, cash generation and growth Higher quality earnings, reducing commodity exposure Strategic Objective Targeted long-term growth opportunities across the Group Current Drax 2025 Other New markets Pellet Production c.20% self-supply >30% self-suppl
Slide 32: 4: Financial Assumptions
Appendix 4: Financial Assumptions 2018 Investment – strategic £30m Investment – maintenance £50-60m Investment – improvement £20-£30m Central costs £30m Depreciation £170m Net interest £30m Tax Just below UK CT rate Net debt to EBITDA Around 2x Working capital Small outflow Base dividend Update at 2
Slide 33: 5: IAS Treatment
Appendix 5: IAS 39 Treatment Financial Instrument Location of gains and losses in the annual report Power Hedge Reserve International coal Income Statement Financial coal Hedge Reserve and Income Statement Foreign exchange Hedge Reserve and Income Statement Carbon Hedge Reserve Gas Income Statement
Slide 34: 6: Group Income Statement
Appendix 6: Group Income Statement In £m 2017 2016 ▲% Revenue 3,685 2,950 Cost of sales (3,140) (2,574) Gross profit 545 376 Operating costs (316) (236) EBITDA 229 140 64% Unrealised (losses) / gains on derivative contracts (156) 177 Depreciation, amortisation and disposals (182) (113) Other items (
Slide 35: 7: Group Underlying Earnings
Appendix 7: Group Underlying Earnings In £m 2017 2016 ▲% Reported (loss) / earnings (151) 194 Unrealised losses / (gains) on derivative contracts 156 (177) Other items 8 - Cost of refinancing 24 - Tax impact of above adjustments (34) 4 Underlying earnings 3 21 (86)% 35
Slide 36: 8: Group Cash Flow Statement
Appendix 8: Group Cash Flow Statement In £m 2017 2016 ▲% EBITDA 229 140 Working capital / other 147 63 Debt service (47) (21) Tax (14) 9 Net cash from operating activities 315 191 65% Capital investment – maintenance and improvement (127) (93) Capital investment – strategic - Acquisition of Opus Ene
Slide 37: 9: Power Generation – Gross Profit
Appendix 9: Power Generation – Gross Profit In £m 2017 2016 ▲% Revenue(1) Power sales 1,789 1,876 ROC sales 627 548 CfD income 248 10 Ancillary services income 31 47 Fuel sales 8 4 Other income 17 6 2,720 2,491 9% Cost of sales Generation fuel costs (1,100) (1,012) Fuel sold (7) (4) ROC support 424
Slide 38: 10: B2B Energy Supply – Gross Profit
Appendix 10: B2B Energy Supply – Gross Profit In £m 2017 2016 ▲% Revenue 1,999 1,326 51% Cost of sales Cost of power and gas purchases (884) (689) Grid charges (436) (310) Other costs (562) (304) (1,882) (1,303) 44% Gross profit 117 23 409% 38
Slide 39: 11: Pellet Production – Gross Profit
Appendix 11: Pellet Production – Gross Profit In £m 2017 2016 ▲% Revenue 136 74 84% Cost of sales (97) (56) 73% Gross profit 39 18 217% 39
Slide 40: 12: Consolidated EBITDA
Appendix 12: Consolidated EBITDA Consolidated EBITDA 2017 Power B2B Energy Pellet In £m Adjustments Consolidated Generation Supply Production Segment EBITDA 238 29 6 (10) 263 Central costs (34) Consolidated EBITDA 229 Consolidated EBITDA 2016 Power B2B Energy Pellet In £m Adjustments Consolidated Ge
Slide 41: 13: ROC Reporting
Appendix 13: ROC Reporting ROC assets In £m At 1 January 2017 258 Generated 481 Utilised or sold (624) At 31 December 2017 146 Balance sheet reconciliation Generated – estimated benefit of generating electricity with biomass Utilised or sold – original estimated balance sheet value charged to cost o
Slide 42: 14: Tax Reconciliation
Appendix 14: Tax Reconciliation Reported Underlying In £m 2017 2016 2017 2016 Profit / (loss) before tax (183) 197 3 21 Tax at UK CT rate 35 (39) (1) (4) Adjustment to prior year (3) 36 (1) 4 taxes and other Items Tax (charge) / credit 32 (3) (2) - Effective tax rate 18% 2% 40% - UK corporation tax
Slide 43: 15: Group Balance Sheet
Appendix 15: Group Balance Sheet In £m 2017 2016 ▲% Non-current assets 2,279 2,198 Current assets 1,239 1,471 Current liabilities (865) (885) Non-current liabilities (933) (739) Net assets 1,720 2,045 (16)% Shareholders’ equity 1,720 2,045 43
Slide 44: 16: Contracted Power Sales
Appendix 16: Contracted Power Sales Contracted at 20 February 2018 2018 2019 2020 Power sales (TWh) 16.6 7.3 3.0 - Fixed price power sales (TWh) 15.9 6.0 2.2 At an average achieved price (per MWh) £43.8 £43.1 £42.0 - Gas hedges (TWh) 0.6 1.4 0.8 At an achieved price per therm 41.3p 45.0p 48.0p 44
Slide 45: 17: Commodity Price Movements
Appendix 17: Commodity Price Movements EUA Carbon Price Power Price (UK) 9 55 8 50 7 45 £/MWh €/t 6 40 5 35 Sum-17 Win-17 4 30 Sum-18 Win-18 Dec-17 Dec-18 Dec-19 Dec-20 Sum-19 Win-19 3 25 Jan-16 Jul-16 Jan-17 Jul-17 Jan-16 Jul-16 Feb-17 Aug-17 Mar-18 Coal Prices (API#2) Gas Prices (NBP) 100 55 90 50
Slide 46: 18: Forward Spread Movements
Appendix 18: Forward Spread Movements 1 Dark Green Spread Clean Spark Spread 10 10 5 5 £/MWh £/MWh 0 0 Jan-16 Jul-16 Feb-17 Aug-17 Mar-18 (5) -5 (10) -10 Jan-16 Jul-16 Feb-17 Aug-17 Mar-18 Sum-17 Win-17 Sum-18 Sum-17 Win-17 Sum-18 Win-18 Sum-19 Win-19 Win-18 Sum-19 Win-19 46 Source: Drax. Assumed ty
Slide 47: 19: Forward Spread Movements
Appendix 19: Forward Spread Movements 2 Baseload RO Bark Spread Peak RO Bark Spread 40 40 35 35 30 30 25 25 £/MWh £/MWh 20 20 15 15 10 10 Sum-17 Win-17 5 Sum-18 Win-18 5 Win-17 Win-18 Sum-19 Win-19 0 0 Jan-16 Jul-16 Feb-17 Aug-17 Mar-18 Jan-16 Jul-16 Feb-17 Aug-17 Mar-18 47
Slide 48: 20: Coal Capacity and IED
Appendix 20: Coal Capacity and IED IED(1) Installation Operator Fuel Capacity (GWe) 17/18 CM(4) 18/19 CM(4) 19/20 CM(4) 20/21 CM(4) 21/22 CM(4) Decision Fiddlers Ferry SSE Coal 2.0 TNP(2) Yes Yes No No No Eggborough EPH Coal 1.9 LLD(3) Yes No No No No Cottam EDF Energy Coal 2.0 TNP(2) Yes Yes No No
Slide 49: Full Year Results
Full Year Results 12 Months Ended 31 December 2017 27 February 2018