Slide 1: Preliminary Results Year Ended 31 December 2012
Preliminary Results Year Ended 31 December 2012 19 February 2013
Slide 2: Agenda
Agenda 2012 Business Review Dorothy Thompson Chief Executive 2012 Financial Review Tony Quinlan Finance Director Biomass Transformation Dorothy Thompson 2 Drax Group plc Preliminary Results – Year Ended 31 December 2012
Slide 3: 2012 Summary
2012 Summary Dorothy Thompson - Chief Executive 2012 profits in line with expectations EBITDA Continued strength in operations £298m Strong hedge for 2013 Offset by EU ETS Phase III And 1st year of UK carbon tax Underlying Earnings Per Share 51.9p Biomass transformation Mandate, means and expertise
Slide 4: 2012 Business Review: Operational Performance
2012 Business Review Operational Performance Safety Performance Maintaining world class standards 0.6 of safety 2010 Global Coal Power Plant First Quartile TRIR (1) – Solomons LLC 0.5 86% Availability (2011: 88%) 0.4 4.8% forced outage rate (2011: 5.8%) 0.3 Long-term FOR target of 5% 0.2 9.6%
Slide 5: 2012 Business Review: Haven Power Update
2012 Business Review Haven Power Update Credit-efficient route to market Haven Power Sales (TWh) (2) 6.0 Targeting 10 - 15TWh by 2015 (3) 5.0 Sales growth remains business priority Volume at NBP (TWh) I&C and SME markets (1) 4.0 Continue to expect modest loss up to 2015 as sales growth deliver
Slide 6: Positions Under Contract
2012 Business Review Positions Under Contract Positions Under Contract as at 11 February 2013 2013 2014 2015 Power Sales – TWh 22.1 11.2 2.9 Comprising: Fixed price TWh at average achieved price £ per MWh 19.7 @ 51.9 8.6 @ 53.6 1.0 @ 56.5 Fixed margin and structured contracts TWh 2.4 2.6 1.9 Car
Slide 7: Hedging Strategy
2012 Business Review Hedging Strategy Coal business – shorter term margin hedge Wood Pellets – Components of Cost (1) Hedge dark green spread Typical Supply Chain Profile Margin fixed by power sale matched with coal and carbon purchase Exception: purchase limited medium term fixed price domest
Slide 8: 2012 Financial Review - Highlights
2012 Financial Review - Highlights Tony Quinlan - Finance Director EBITDA Final Dividend (3) £298m 10.9p/share (£44m) Underlying Earnings Per Share (1) Net Cash (4) 51.9p £311m Strong balance sheet – Total Dividends (2) biomass financing secured 25.3p/share (£97m) Robust platform established for
Slide 9: Income Statement - Summary
2012 Financial Review Income Statement - Summary % Year- 2012 2011 on-Year Revenue 1,780 1,836 Cost of Sales (1,269) (1,335) Gross Margin 511 501 Operating Costs (213) (167) EBITDA 298 334 -11% IAS39 Unrealised Gains / (Losses) on Derivative Contracts (36) 89 Depreciation (58) (57) Operating Profit
Slide 10: Income Statement – Revenue
2012 Financial Review Income Statement – Revenue Power Prices In £m (unless otherwise stated) 2012 2011 70 Total Revenue 1,780 1,836 Sum 12 60 Win 12 £/MWh Sum 13 Wholesale Power Sales 1,252 1,471 Win 13 50 Retail Power Sales 451 275 40 Jan-11 Jun-12 May-11 Sep-11 Feb-12 Oct-12 Electrical Output (Ne
Slide 11: Income Statement – Cost of Sales
2012 Financial Review Income Statement – Cost of Sales Coal Prices (API 2) 2012 2011 150 140 Total Cost of Sales £1,269m £1,335m 130 Cal 12 $/tonne 120 Cal 13 Fuel and Carbon Costs (1) £929m £1,021m 110 Cal 14 100 Cost of Power Purchases £142m £172m 90 80 May-11 Jan-11 Jan-12 Jun-12 Sep-11 Oct-12 Gr
Slide 12: Income Statement – Operating Costs
2012 Financial Review Income Statement – Operating Costs Operating costs 2012: £213m 2012 Operating Cost Bridge 220 2012 total operating cost increase £46m Previous 2012 operating cost guidance + £38m 200 Double outage and business rates: +£20m Underlying cost inflation: +£8m (5%) 180 £m Inv
Slide 13: Capital Investment
2012 Financial Review Capital Investment Biomass transformation capex: £650m - £700m Biomass Transformation Capex: £650m - £700m c.50% is substantial equipment installations and modifications at Drax site Supply Chain Fuel delivery, storage and distribution & IED Drax Site Balance is comprised of:
Slide 14: Cash Flow
2012 Financial Review Cash Flow 600 500 400 £'m 300 200 100 0 Opening EBITDA Working Tax Capex Equity M&G Debt Dividends Closing Cash Capital / Issue Term Loan Service Cash Other Working Capital / Other Tax Capex Dividends Closing Cash (£35m) (£51m) (£206m) (£96m) £402m Biomass stocks outflow (£30m)
Slide 15: Funding and Debt Facilities
2012 Financial Review Funding and Debt Facilities Biomass financing secured New Equity New equity: £190m(1) £190m(1) New debt with 6-8 year maturity £100m M&G term loan facility (drawn) £100m UK Green Investment Bank term loan (undrawn) New Debt M&G £100m £400m working capital and LC(2) facility
Slide 16: Credit Rating and Business Model
2012 Financial Review Credit Rating and Business Model Debt rating: BB+ stable Robust Sub-Investment Grade Business Model Increased working capital Shorter tenor of hedging Commodity trading line Capped collateral Growth of Haven and LC facility agreements Robust sub-investment grade business model
Slide 17: Economics of the Biomass Transformation
2012 Financial Review Economics of the Biomass Transformation EBITDA and Capex Profile (1) Financial impact of transformation Potential for substantial improvement 500 in EBITDA from 2015 and beyond Under many reasonable scenarios 400 £m Investment in the transformation 300 Capex: £650m - £700
Slide 18: Summary
2012 Financial Review Summary Strong balance sheet – biomass financing secured Robust platform established for business transformation Potential for substantial EBITDA growth from 2015 and beyond 18 Drax Group plc Preliminary Results – Year Ended 31 December 2012
Slide 19: Biomass Transformation – Milestones
Biomass Transformation – Milestones Dorothy Thompson - Chief Executive Biomass US Sourcing Investments UK Drax Infrastructure Site 19 Drax Group plc Preliminary Results – Year Ended 31 December 2012
Slide 20: Biomass Transformation: Sustainability
Biomass Transformation Sustainability All Drax biomass procured against industry- leading sustainability policy Low GHG(1) emission compared to coal and gas 5th year of carbon foot-printing Land use and biodiversity Independent audit of supply chain UK sustainability legislation now in place
Slide 21: Fuel Purchasing and Supply Chain
Biomass Transformation Fuel Purchasing and Supply Chain Fuel contracting Secured rights to fuel for first unit – c.2Mt for 2013/14 ROC year Good progress securing rights to fuel for subsequent units > 3Mt for 2014/15 ROC year, plus limited volume from own pellet production Advanced negotiati
Slide 22: US Pellet Operations
Biomass Transformation US Pellet Operations US Gulf pellet operations Investment decision end 2012 2 pellet plants – combined capacity 900kt pa Morehouse Plant 450kt pa Port facility – export capacity up to 3Mt pa Good progress with development Land under contract Permitting process and en
Slide 23: Drax Site Development
Biomass Transformation Drax Site Development Rail Unloading and Storage Fuel Distribution Combustion Boiler Flame Monitor Combustion Air Balance Burners Furnace Camera Mill 23 Drax Group plc Preliminary Results – Year Ended 31 December 2012
Slide 24: Drax Site Film
Biomass Transformation Drax Site Film Page Intentionally Blank 24 Drax Group plc Preliminary Results – Year Ended 31 December 2012
Slide 25: 2013 – First Unit Milestones
Biomass Transformation 2013 – First Unit Milestones Q2 2013 Q3 2013 Q4 2013 Phased Operating on Operating on Co-firing Systems Commissioning New Plant April Nov Dec 1st Unit Fuel Distn. Dome 1, Rail Converted system Unloading Use of co-firing systems Use of temporary off-site fuel storage for first
Slide 26: Milestones and Progress
Biomass Transformation Milestones and Progress Sustainable 2Mt for 2013/14 ROC year(1) Biomass 4Mt for 2014/15 ROC year On Track Fuel Sourcing Secured 6Mt by 2016/17 ROC year On Track Pellet Construction start: target summer 2013 US In Plants Negotiation Investments & Port COD(2): target winter 20
Slide 27: IED and CCS Update
IED and CCS Update Industrial Emissions Directive (IED) EU agreed implementation arrangements Allow flexibility in timing and choice of technology Assessment of technical solutions well advanced Principal solution drivers – fuel mix and plant flexibility Define by end 2013 Carbon capture and s
Slide 28: Conclusion
Conclusion 2012 profits in line with expectations Continued strength in operations Strong hedge for 2013 Offset by EU ETS Phase III And 1st year of UK carbon tax Biomass transformation Mandate, means and expertise 28 Drax Group plc Preliminary Results – Year Ended 31 December 2012
Slide 29: Questions
Questions Drax Power Limited
Slide 30: Appendices
Appendices 1. Definitions 2. Financial Calendar 3. IAS39 Treatment 4. Power Market 5. Gas Market 6. Coal Market 7. Carbon Market 8. Carbon Price Support 9. Commodity Markets 10. UK Generation Capacity 11. Biomass Fuels 12. Biomass Trial Results 13. ROC Banding Review Decisions 14. ROC Mechanics 30 D
Slide 31: 1: Definitions
Appendix 1: Definitions 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 API2/4/6 board (“FOB”) to Richards Bay, South Africa. API6 is the re
Slide 32: 1: Definitions
Appendix 1: Definitions LNG LIQUIFIED NATURAL GAS The frequency rate calculated on the following basis (number of accidents/hours worked * 100,000). LTIR LOST TIME INJURY RATE Accidents are defined as occurrences where the injured party is absent from work for more than 24 hours. One of the mechanis
Slide 33: 2: Financial Calendar
Appendix 2: Financial Calendar Event 2013 Annual General Meeting 24 April Ordinary shares marked ex-dividend 24 April Record date for final dividend 26 April Final dividend payment date 17 May Interim Management Statement Mid May Financial Half Year End 30 June Announcement of Half Year Results 30 J
Slide 34: 3: IAS39 Treatment
Appendix 3: IAS39 Treatment Financial Location of gains and losses in the 2012 Annual Report Instrument Power Hedge Reserve International Coal Hedge Reserve and Income Statement Financial Coal Largely Income Statement Foreign Exchange Hedge Reserve and Income Statement Carbon Hedge Reserve 34 Drax G
Slide 35: 4: Power Market
Appendix 4: Power Market Range of Market DGS and GSS (1) by Efficiency (Baseload) UK power market 35 (1) Power prices continue to be driven 30 Efficiencies by gas market 25 DGS GSS 20 Despatch dynamics 15 £/MWh 10 40% 58% Plant efficiencies significant factor 5 in load profiles 0 36% 49% Diffe
Slide 36: 5: Gas Market
Appendix 5: Gas Market Fukushima Impact on LNG Fukushima impact on global 120 50 LNG market continues 45 100 Japanese nuclear constrained Pre Fukushima Post Fukushima 40 35 LNG Imports (bcm) pence/therm 80 2 of 54 reactors in operation 30 Increased Asian LNG prices 60 25 limits UK spot market
Slide 37: 5: Gas Market
Appendix 5: Gas Market European to UK Gas Price Differentials Spot EBPTM Index v. UK Spot Gas (NBP) Differential 70 60 50 40 30 ppt 20 10 0 Jun-10 Jun-12 Jun-11 Dec-11 Dec-10 Dec-12 Aug-10 Aug-12 Oct-10 Aug-11 Oct-11 Oct-12 Feb-11 Feb-12 Apr-12 Apr-11 -10 -20 -30 Sources: European Benchmark Price (E
Slide 38: 6: Steam Coal Market
Appendix 6: Steam Coal Market Continued supply driven weakness in Chinese Seaborne Coal Imports global prompt market 160,000 140,000 Prompt API2 prices <$90/t Thousand metric tons 120,000 UK domestic coal producers under pressure 100,000 80,000 Chinese seaborne imports up 41% in 2012 60,000 St
Slide 39: 6: Coal Market
Appendix 6: Coal Market API2, API4, Implied Freight API2, API4, Implied Freight Calendar 2013 ($/t) 160 20 140 120 Implied Freight ($/Tonne) 100 API2 and API4 ($/Tonne) 80 10 60 40 20 0 0 Nov-10 Dec-10 Nov-12 Dec-12 Aug-10 Sep-10 Aug-11 Sep-11 Nov-11 Dec-11 Aug-12 Sep-12 Oct-10 Apr-11 Oct-11 Apr-12
Slide 40: 7: Carbon Market
Appendix 7: Carbon Market EUA movements since January 2010 Phase III EUAs – new lows early 2013 18 Driven by Phase II over-supply and weak € / tonne European economies 13 Phase II surplus bankable into 8 Phase III (2013 to 2020) 3 Jan-10 Jun-10 Dec-10 May-11 Nov-11 May-12 Oct-12 Considerable opposit
Slide 41: 8: Carbon Price Support
Appendix 8: Carbon Price Support . HMT Projected Carbon Price Support to 2020 Introduced in Budget 2011 £45 – effective April 2013 £40 Climate Change Levy (CCL) amended to £35 indirectly supplement EU ETS carbon price £30 Based on fuel (coal) consumption £25 Tax per tonne CO2 set annually – 2 year
Slide 42: 9: Commodity Markets
Appendix 9: Commodity Markets UK Forward Spread Movements – to 6 February 2013 Dark Green Spread (£/MWh) Green Spark Spread (£/MWh) 25 25 20 20 15 15 10 10 5 5 0 0 Jan-09 May-09 Sep-09 Jan-10 Jun-10 Oct-10 Feb-11 Jun-11 Nov-11 Mar-12 Jul-12 Nov-12 Jan-09 May-09 Sep-09 Jan-10 Jun-10 Oct-10 Feb-11 Jun
Slide 43: 9: Commodity Markets
Appendix 9: Commodity Markets Commodity Price Movements – to 6 February 2013 Forward Power Price 80 Forward Coal Price (API 2) 150 Sum 11 70 140 Win 11 130 Sum 12 60 120 Cal 11 Win 12 $/tonne £/MWh 110 Cal 12 50 Sum 13 100 Cal 13 Win 13 90 Cal 14 40 Sum 14 Win 14 80 30 70 60 20 May-10 Nov-12 Jan-10
Slide 44: 10: UK Generation Capacity
Appendix 10: UK Generation Capacity Ofgem Assessment Ofgem De-rated Capacity Margin Projections (1) Significant uncertainty Key drivers: Gas plant closures Gas plant new build Interconnector flows Ofgem capacity assessment conclusions: Base case de-rated margin decline to 4% by 2016 Wide
Slide 45: 10: UK Generation Capacity
Appendix 10: UK Generation Capacity Summary of LCPD Elections Installed Capacity Capacity Capacity Opted Out Hours Capacity Capacity Opted In Opted In ELV Opted Out Remaining Installation Operator Fuel (MWe) Opted In (MW) NERP (MW) (MW) (MW) (Elexon – Feb 2013) Drax Drax Power Coal 3870 3870 3870 0
Slide 46: 11: Biomass Fuels
Appendix 11: Biomass Fuels Forestry Residuals Agricultural By-products Energy Crops Forestry Wheat/Oat Miscanthus & thinnings straw switchgrass Sunflower Harvesting husks residues Bamboo Sugarcane Chips/ bagasse Sawdust Jatropha Rice straw Bark Short Rotation Coppice (e.g. Willow) Olive pulp Wood Sh
Slide 47: 12: Biomass Trial Results
Appendix 12: Biomass Trial Results Demonstrated technical capability to convert Drax units fully to biomass DI (1) Fuel Trialled range of additives to: Distribution Enable high availability Contribute to efficiency and output performance Developed technical solutions to deliver: Reliable and f
Slide 48: 13: ROC Banding Review Decisions
Appendix 13: ROC Banding Review Decisions Level of ROCs / MWh Technologies Current Support DECC Decision Offshore wind 2.0 2.0 – 1.8 Onshore wind 1.0 0.9 Standard co-firing (1) (< 50%) 0.5 0.3 – 0.5 Enhanced co-firing (51% - 84%) (2) 0.5 0.6 Enhanced 0.7 (2013 – 2015) co-firing (85% - 99%) (2) 0.5 0
Slide 49: 14: ROC Mechanics
Appendix 14: ROC Mechanics Mechanism Renewables Obligation (RO) – Renewable Obligation and Output 40 suppliers must source increasing volume of renewable power 35 30 Obligation can be met in two ways: 25 ROCs (m) Surrender ROCs or pay a buy-out 20 All buy-out funds recycled to suppliers 15 that su
Slide 50: 14: ROC Mechanics
Appendix 14: ROC Mechanics Cash Flows and Accounting ROC generation measured in annual Balance Sheet Movement: compliance periods (April – March) ROC and LEC Assets £m ROC cash flows typically 6 months after At 1 January 2012 32 annual compliance period ends Impacts working capital Generated 32 Dr
Slide 51: Disclaimer
Disclaimer This presentation has been prepared by Drax Group plc (“Drax” or the “Company”) and the information contained herein is restricted and is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to loc
Slide 52: Disclaimer (cont.)
Disclaimer (cont.) In making this presentation available, Drax makes no recommendation to buy, sell or otherwise deal in shares in Drax and its subsidiaries (the “Group”) or in any other securities or investments whatsoever, and you should neither rely nor act upon, directly or indirectly, any of th
Slide 53: Preliminary Results
Preliminary Results Year Ended 31 December 2012 19 February 2013 Drax Power Limited