Slide 1: 2019 Half Year Results
2019 HALF YEAR RESULTS 6 Months Ended 30 June 2019 24 July 2019
Slide 2: Agenda
AGENDA Introduction & Operational Review Will Gardiner Financial Review Andy Skelton Strategy Update Will Gardiner 2019 Half Year Results July 2019 2
Slide 3: Our Purpose and Strategy
OUR PURPOSE ENABLING A ZERO CARBON, LOWER COST ENERGY FUTURE OUR STRATEGY BE THE LEADING PROVIDER OF POWER SYSTEM SUPPORT BUILD A LONG-TERM FUTURE FOR BIOMASS GIVE CUSTOMERS CONTROL OF THEIR ENERGY 2019 Half Year Results July 2019 3
Slide 4: Performance Summary
PERFORMANCE SUMMARY GOOD PERFORMANCE, SUPPORTING UK ENERGY NEEDS, FULL YEAR FINANCIAL EXPECTATIONS UNCHANGED Financial performance Full year expectations unchanged, performance weighted to H2 2019 12.5% increase in expected dividend Continue to expect to complete refinancing during 2019 Operational
Slide 5: Enabling a Zero Carbon Energy Future
ENABLING A ZERO CARBON ENERGY FUTURE RENEWABLE AND HYDRO DRIVING CONTINUOUS REDUCTION IN GENERATION CO2 Growing revenues from biomass and hydro (%) CO2 reduction at Drax Generation (tonnes of CO2/GWh) 100% 800 90% 700 80% >25% pa CO2 600 compound 70% 500 reduction rate 60% 50% 400 40% 300 30% 200 20
Slide 6: Safety and ESG
SAFETY AND ESG A SUSTAINABLE LONG-TERM BUSINESS MODEL Safety TRIR 0.30 (H1 2018: 0.18) Environment Largest single source of renewable MWh in UK Expanded biomass sustainability policy Social Supporting over 17,500 UK jobs across GB Participant in UN Global Compact Governance Development of sustainabi
Slide 7: Capacity Market Update
CAPACITY MARKET UPDATE European Commission conducting formal investigation March 2019 – opening decision confirmed limited scope of investigation April 2019 – one-month consultation process Remaining steps Internal review within the European Commission Drax position Continue to expect market to be r
Slide 8: Operational Review
OPERATIONAL REVIEW
Slide 9: Generation
GENERATION FLEXIBLE, LOW-CARBON AND RENEWABLE GENERATION Biomass Adjusted EBITDA Biomass Generation Optimisation of ROC generation – output weighted to H2 £148m 6.4TWh (HY 2018: £88m) (HY 2018: 6.3TWh) Two planned outages complete, third in H2 Biomass Availability Coal Generation Hydro 77% 0.4TWh St
Slide 10: Hydro and Gas Generation
HYDRO AND GAS GENERATION INTEGRATION PROGRESSING WELL, STRONG PERFORMANCE IN SYSTEM SUPPORT MARKETS Pumped storage: Cruachan Attractive financial attributes unchanged • >80% of expected 2019 EBITDA EBITDA £90-£110m, inclusive of capacity payments from non-power sources Returns significantly in exces
Slide 11: Growing Value from System Support
GROWING VALUE FROM SYSTEM SUPPORT GROWING SYSTEM NEED, STRONG PERFORMANCE FROM NEW ASSETS Growing system need – BSUoS(1) (£/MWh) Value from flexibility – Drax (£m) 3.0 80 2.5 60 2.0 1.5 40 1.0 20 0.5 0.0 0 2017 2018 2019 H1-17 H2-17 H1-18 H2-18 H1-19 Actual Forecast Lower cost coals System support 1
Slide 12: Pellet Production
PELLET PRODUCTION TARGET GOOD QUALITY PELLETS AT LOWEST COST Operational performance weighted to H2 Adjusted EBITDA Weather restricted pellet production in H1 £8m (HY 2018: £10m ) Cost reduction benefits in H2 Pellet Production LaSalle rail spur now operational LaSalle co-located sawmill now operati
Slide 13: Customers (B2B Energy Supply)
CUSTOMERS (B2B ENERGY SUPPLY) GROWTH IN METERS AND MARGIN PER MWH Financial performance Adjusted EBITDA Lower energy sales £9m (HY 2018: £16m) Growth in gross profit per MWh Power Sales Growth in customer meters Improvement in bad debt expense 8.0TWh (HY 2018: 9.3 TWh) Increase in operating cost – g
Slide 14: Financial Review
FINANCIAL REVIEW
Slide 15: Financial Highlights
FINANCIAL HIGHLIGHTS STRONG FINANCIAL PERFORMANCE Adjusted EBITDA(1) Interim Dividend Expected Full Year Dividend £138m 6.4p/share 15.9p/share (HY 2018: £102m) (£25m) (£63m) (HY 2018: 5.6p/share, £22m) (2018: 14.1p/share, £56m) Adjusted Basic Earnings Per Share Net Cash From Operating Activities Net
Slide 16: Group Adjusted EBITDA Bridge H1 2018 – H1 2019
GROUP ADJUSTED EBITDA BRIDGE H1 2018 – H1 2019 £m 31 1 150 7 36 9 6 6 100 2 138 102 50 H1-18 Pellet Production Acquired Capacity Biomass Coal generation Customers Core Services Other H1-19 Group EBITDA generation assets Market generation & other Group EBITDA Pellet Production Generation Customers Co
Slide 17: Customers Adjusted EBITDA Bridge H1 2018 – H1 2019
CUSTOMERS ADJUSTED EBITDA BRIDGE – H1 2018 – H1 2019 £m 25 3 20 3 5 15 4 8 2 10 4 16 5 9 0 H1-18 Growth in Value Reduced Bad debt Restructuring and Next generation Operating H1-19 Customers EBITDA meters per MWh volume integration systems costs Customers EBITDA Gross profit Bad debt Operating cost H
Slide 18: Net Debt
NET DEBT ON TARGET FOR 2X NET DEBT / ADJUSTED EBITDA BY END OF 2019(1) £m 1,200 1,011 37 27 7 68 900 88 138 692 600 924 300 319 0 31 Dec 2018 H1 Adjusted Capital Debt Tax Dividend & Working capital 30 June 2019 Net debt EBITDA expenditure service buy back inflows & Net debt (incl. acquisition) other
Slide 19: Capital Investment
CAPITAL INVESTMENT 2019 FULL YEAR EXPECTATIONS UNCHANGED 2019 Current Estimate Key Projects Investment Maintenance Maintain operational performance £50m Acquired assets Hydro and Gas £30-35m Efficiency improvement, including turbine upgrade Enhancement £40m Next generation customer systems Biomass s
Slide 20: Balance Sheet
BALANCE SHEET LONG-TERM STRUCTURES IN PLACE TO SUPPORT GROWTH Good progress with refinancing of bridge facility Instrument Maturity Description $200m fixed rate bond issue (completed May 2019) 2025 $500m High yield bonds Continue to expect to complete refinancing in 2019 2022 £350m Maintain credit r
Slide 21: Capacity Market
CAPACITY MARKET 2019 capacity payments Generation (£m) H1 2019 H2 2019 2019 Total Continue to expect market to be reinstated in 2019 Coal 11 11 22 Retrospective payment for capacity Hydro and gas 23 23 46 Accounting treatment Adjusted EBITDA impact if no 34 34 68 No revenue accrued in Generation cap
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 electricity 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 Renewabl
Slide 24: Biomass Has an Important Role to Play
BIOMASS HAS AN IMPORTANT ROLE TO PLAY ENABLING A ZERO CARBON, LOWER COST ENERGY FUTURE Supports forest growth and health “We have assumed overall bio resource Commercially managed forestry consumes more CO2 than unmanaged available to the UK of around 200 TWh… …This is equivalent to around 10% of UK
Slide 25: Biomass Cost Reduction: US Operations 2019 Project Highlights
BIOMASS COST REDUCTION US OPERATIONS – 2019 PROJECT HIGHLIGHTS LaSalle rail spur Investment: $15m Reduced cost versus road haulage Project cost savings for LaSalle 450kt throughput, plus LaSalle expansion c.£10/MWh(1) on 450Kt pa LaSalle sawmill co-location Investment: nil Long-term sawdust agreemen
Slide 26: Biomass Cost Reduction: US Operations Other Developments
BIOMASS COST REDUCTION US OPERATIONS – OTHER DEVELOPMENTS 350kt capacity expansion LaSalle 150kt Project cost savings Amite 100kt Morehouse 100kt >£20/MWh(1) on 350kt pa Investment £50m(1) (2019 to 2020) Revised capacity Benefits 1.85Mt Increased capacity and throughput Pellet and hammermill upgrade
Slide 27: Biomass Cost Reduction: UK Developments
BIOMASS COST REDUCTION UK DEVELOPMENTS HP turbine upgrade programme (2019-2021) Turbine upgrade and Biomass units 1-3 Capital investment c.£40m improvements Improved thermal efficiency, reduced maintenance c.£1/MWh (3 biomass units from 2022) Renewal of third party contracts (2020 onwards) Award lon
Slide 28: BECCS – Large-Scale Carbon Negative Generation at Drax
BECCS – LARGE-SCALE CARBON NEGATIVE GENERATION AT DRAX TECHNOLOGY OPTIONS AND DEVELOPMENT FRAMEWORK Pilot studies at Drax Power Station Organic solvent technology developed by C-Capture • Chemical process for CO2 removal • Capturing one tonne of CO2 per day • Potential to capture 15m tonnes pa BECCS
Slide 29: Strategic Projects – Gas
STRATEGIC PROJECTS – GAS DEVELOPMENT OF OPTIONS FOR INVESTMENT IN TRANSITIONAL GAS TECHNOLOGIES 7-10GW of new gas capacity required Transitional technology to deliver 2050 targets Supports increased levels of wind, solar and nuclear Drax CCGT Development of options to meet system requirements -Up to
Slide 30: Outlook
OUTLOOK FULL YEAR EXPECTATIONS REMAIN UNCHANGED Operational performance Higher levels of biomass generation in H2 Delivery of hydro and gas asset performance targets Increase in pellet production and cost reductions Improving Customers’ business performance Financial performance Sustainable and grow
Slide 31: Questions
QUESTIONS
Slide 32: Appendices
APPENDICES 1. Drax Group 2019 2. Investment Highlights 3. Group Income Statement 4. Group Cash Flow Statement 5. Power Generation – Adjusted EBITDA 6. Pellet Production – Adjusted EBITDA 7. Customers – Adjusted EBITDA 8. Consolidated Adjusted EBITDA 9. Contracted Power Sales 10. Forward Commodity Pr
Slide 33: Drax Group 2019
UK‘s largest source of renewable generation DRAX GROUP 2019 11% of UK‘s renewable power(1) ENABLING A ZERO CARBON LOWER COST ENERGY FUTURE UK‘s 3rd largest energy generator Flexible, low-carbon and renewable Multi-site, multi-technology portfolio 6.5GW capacity • 2.6GW biomass • 1.3GW coal • 0.4GW p
Slide 34: Investment Highlights
INVESTMENT HIGHLIGHTS STRATEGY ALIGNED WITH UK NET ZERO CARBON TARGET • 6.5GW portfolio of flexible, low-carbon and renewable generation High degree of earnings visibility, • Reduced business risk – multi-site, multi-technology asset base reducing commodity exposure • High proportion of non-commodit
Slide 35: Group Income Statement
GROUP INCOME STATEMENT HY 2019 HY 2018 In £m Adjusted Exceptional Total Adjusted Exceptional Total Revenue 2,227 5 2,232 2,079 (11) 2,068 Cost of sales (1,863) (4) (1,867) (1,801) 35 (1,766) Gross profit 364 1 365 278 24 302 Adjusted EBITDA 138 - - 102 - - Depreciation (83) - (83) (61) - (61) Amorti
Slide 36: Group Cash Flow Statement
GROUP CASH FLOW STATEMENT In £m HY 2019 HY 2018 Adjusted EBITDA 138 102 Working capital / other 89 21 Debt service (23) (18) Tax (7) 7 Net cash from operating activities 197 112 Capital investment including acquisitions (760) (48) Net refinancing 549 3 Dividend (34) (30) Share buy back (3) (13) Othe
Slide 37: Power Generation – Adjusted EBITDA
POWER GENERATION – ADJUSTED EBITDA In £m HY 2019 HY 2018 Revenue Power sales 1,158 873 ROC sales 310 339 CfD income 117 165 Ancillary services income 31 9 Fuel sales 2 42 Other income 127 23 1,745 1,451 Cost of sales Generation fuel costs (660) (544) Fuel sold (2) (45) ROC support 229 192 Carbon tax
Slide 38: Pellet Production – Adjusted EBITDA
PELLET PRODUCTION – ADJUSTED EBITDA In £m HY 2019 HY 2018 Revenues 97 95 Cost of sales (64) (66) Gross profit 33 29 Operating costs (25) (19) Adjusted EBITDA 8 10 2019 Half Year Results July 2019 38
Slide 39: Customers – Adjusted EBITDA
CUSTOMERS – ADJUSTED EBITDA In £m HY 2019 HY 2018 Revenue 1,128 1,109 Cost of sales Cost of power and gas purchases (518) (422) Grid charges (234) (226) Other costs (304) (387) (1,056) (1,035) Gross profit 72 74 Bad debt (13) (18) Operating costs (50) (40) Adjusted EBITDA 9 16 2019 Half Year Results
Slide 40: Consolidated Adjusted EBITDA
CONSOLIDATED ADJUSTED EBITDA Power Pellet Customers Adjustments Consolidated HY 2019 £m Generation Production Segment Adjusted EBITDA 148 8 9 (3) 162 Core Services (24) Consolidated Adjusted 138 EBITDA Power Pellet Customers Adjustments Consolidated HY 2018 £m Generation Production Segment Adjusted
Slide 41: Contracted Power Sales
CONTRACTED POWER SALES Contracted at 20 July 2019 2019 2020 2021 Power sales (TWh) 17.3 11.3 5.4 - Fixed price power sales (TWh) 17.8 11.4 4.8 At an average achieved price (£ per MWh) 56.7 54.6 51.1 - Gas hedges (TWh) (0.5) (0.1) 0.6 At an achieved price (pence per therm) 68.3 173.5 55.6 2019 Half Y
Slide 42: 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 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19 Apr 19 Jul 19 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19 Apr 19 Jul 19 Sum-19 Win-19 Sum-20 Win-20 Sum-21 Dec 2019 Dec 2020 Dec 2021 API2 Coal
Slide 43: Forward Spreads
FORWARD SPREADS Peak CSS (£/MWh) Peak DGS (£/MWh) Peak ROC Bark Spread (£/MWh) 30 20 80 60 20 10 40 10 0 20 0 (10) 0 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Sum-19 Win-19 Sum-20 Sum-19 Win-19 Sum-20 Sum-19 Win-19 Baseload CSS (£/MWh) B
Slide 44: Half Year Results
2019 HALF YEAR RESULTS 6 Months Ended 30 June 2019 24 July 2019