Slide 1: Preliminary Results
Preliminary Results 12 Months Ended 31 December 2016 16 February 2017
Slide 2: Helping Change the Way Energy is Generated, Supplied and Used for a Better Future
Helping Change the Way Energy is Generated, Supplied and Used for a Better Future Dorothy Thompson – CEO Agenda Delivering targeted Deploying expertise across growth the supply chain 2016 Operations and Business Review Financial Review and Themes Generation Delivering the Strategy Retail Corporate C
Slide 3: 2016 – Biomass Completion, New Phase of Strategy
2016 – Biomass Completion, New Phase of Strategy Generation EBITDA Three converted biomass units, CfD approved 65% of generation from biomass £140m Challenging commodity markets, but reducing exposure Supporting system stability through flexibility Underlying Earnings Per Share Retail 5.0p/share Est
Slide 4: Safe and Sustainable Operations
Safe and Sustainable Operations Safety Total Recordable Injury Rate Strong Group safety performance – Consistent top quartile performer(1) 0.22 (2015: 0.31) Sustainability Carbon Life Cycle Emissions Proven carbon abatement(2) 34g CO2/MJ – Well established sustainability policy UK target 2015-2020 7
Slide 5: Enhancing the Retail Proposition
Enhancing the Retail Proposition Haven Power Power Sales Volume Established challenger in I&C(1) market – c.13TWh contracted for next 12 months 14.6TWh (2015: 13.8TWh) – Sales £1.3bn (2015: £1.3bn) Good operational performance Gross Profit – Strong I&C renewal performance – Good credit quality with
Slide 6: Biomass Generation – Lowest Cost Large Scale Renewable
Biomass Generation – Lowest Cost Large Scale Renewable Biomass operations Three fully converted biomass units, CfD approved 16% of UK renewable Only large scale flexible renewable generator electricity(1) – Largest single source of renewable energy in UK 10% of total renewable cost(2) – Supply chain
Slide 7: Coal Generation – Security of Supply & System Support
Coal Generation – Security of Supply & System Support Strong operational performance Coal Total Adapting to market conditions Generation Generation – Focus on system support services 6.9TWh 19.6TWh – Flexible operation in prompt and balancing markets (2015: 15.2TWh) (2015: 26.7TWh) – Black Start con
Slide 8: Drax Biomass – a Major Supplier of Wood Pellets
Drax Biomass – a Major Supplier of Wood Pellets US operations working well Pellet Production Providing supply chain flexibility – Nameplate capacity achieved 0.6mt (2015: 0.3mt) – Reduced production to capture attractively priced spot cargoes, retain option for further flexibility Sustainability Sig
Slide 9: Financial Review and Themes
Financial Review and Themes
Slide 10: 2016 Financial Highlights
2016 Financial Highlights Will Gardiner – CFO EBITDA Final Dividend Net Increase in Cash £140m 0.4p (£2m) £95m (2015: £169m) (2015: 0.6p, £2m) (2015: Net decrease £47m) Underlying EPS(1) Total Dividends Net Debt(2) 5.0p 2.5p (£10m) £93m (2015: 11.3p) (2015: 5.7p, £23m) (December 2015: £187m) 2016 Go
Slide 11: 2016 Financial Review
2016 Financial Review Good Performance in Challenging Markets Income Statement 2016 £m 2015 £m ▲% Revenue 2,950 3,065 (4%) Gross profit 376 409 (8%) Operating costs (236) (240) 2% EBITDA 140 169 (17%) EBIT 27 61 (56%) Underlying earnings(1) 21 46 (54%) Cash and Balance Sheet 2016 £m 2015 £m ▲% Net c
Slide 12: EBITDA Bridge 2015 – 2016
EBITDA Bridge 2015 – 2016 180 169 (40) 160 9 140 140 2 120 100 £m 80 60 40 20 0 2015 EBITDA Generation Retail Biomass Supply Chain 2016 EBITDA 12
Slide 13: Net Cash Flow
Net Cash Flow 250 63 (93) 200 150 140 £m (21) 17 95 100 (11) 50 0 2016 EBITDA Working Capital Capital Debt Service Dividend Other Net Cash Flow Expenditure 13
Slide 14: 2017 Financial Themes
2017 Financial Themes Outlook Improving quality and stability of earnings, reducing commodity market exposure – First full year of CfD – Retail and supply chain earnings – System support role – Inclusion of Opus – Evaluating potential opportunities for distressed pellet plant acquisitions Enabling t
Slide 15: Debt Refinancing
Debt Refinancing Funding in place to support Opus acquisition £375m acquisition debt facility – £200m drawn – Balance from existing sources of cash and liquidity Refinancing strategy for 2017 Evaluating range of options Cash and working capital optimisation Maintain strong balance sheet Committed to
Slide 16: Dividend Policy
Dividend Policy Evaluating current policy Considerations – Protect and maintain strong balance sheet – Investment in long-term growth – Increase in depreciation charge Shareholder views sought during H1 2017 16
Slide 17: 2017 Financial Assumptions
2017 Financial Assumptions EBITDA drivers Capital expenditure Major planned outage on CfD unit In line with 2016 Opus – consolidated from 10 February – Investment in base business and strategic initiatives Commodity environment – Strategic initiatives includes investment in US pellet plants, strateg
Slide 18: Financial Summary
Financial Summary 2016 A turning point – Good operational performance in challenging markets – CfD approved – Launch of new strategy 2017 Growth in high quality earnings 18
Slide 19: Delivering the Strategy
Delivering the Strategy
Slide 20: Key Market Themes and Strategic Response
Key Market Themes and Strategic Response Dorothy Thompson – CEO Key market themes Strategic response Increase in challenger brands Challenger brands – Opus and Haven Customer appetite for change Retail Development of new products and Expansion of SME business and product offering services Increased
Slide 21: 2017 Priorities
2017 Priorities Maintain operational excellence across base business Opus Energy joining Drax Group Continuity – Continue to build challenger brand in SME market – Operational management largely unchanged Established integration team – Embed leadership team into Drax Group structure Other benefits –
Slide 22: Energy for a Better Future
Energy for a Better Future Our purpose To help change the way energy is generated, supplied and used for a better future How By providing inspiring, flexible energy solutions that make a difference to customers Result A diversified energy business with expertise and operations in a range of markets
Slide 23: Appendices
Appendices 1. Definitions 2. IAS 39 Treatment 3. Group Income Statement 4. Generation – Gross Profit 5. Retail – Gross Profit 6. Biomass Fuel and Supply – Gross Profit 7. ROC Reporting 8. Tax Reconciliation 9. Group Balance Sheet 10. Opus Energy Financial Summary 11. Contracted Power Sales 12. Power
Slide 24: 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 25: 1: Definitions
Appendix 1: Definitions Abbreviation Name Description 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 mech
Slide 26: 2: IAS Treatment
Appendix 2: IAS 39 Treatment Financial Instrument Location of gains and losses in the annual report 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 Gas Income St
Slide 27: 3: Group Income Statement
Appendix 3: Group Income Statement In £m 2016 2015 ▲% Revenue 2,950 3,065 Cost of sales (2,574) (2,656) Gross margin 376 409 Operating costs (236) (240) EBITDA 140 169 (17)% IAS39 unrealised gains on derivative contracts 177 124 Depreciation (113) (108) Other items - (109) Operating profit 204 76 Ne
Slide 28: 4: Generation – Gross Profit
Appendix 4: Generation – Gross Profit In £m 2016 2015 ▲% Revenue(1) Power sales 1,876 2,163 ROC sales 548 452 CfD income 10 - Ancillary Services income 47 14 Fuel sales 4 2 Other income 6 7 2,491 2,638 (6)% Cost of sales Generation fuel costs (1,012) (1,147) Fuel sold (4) (2) ROC support 526 505 Car
Slide 29: 5: Retail – Gross Profit
Appendix 5: Retail – Gross Profit In £m 2016 2015 ▲% Revenue 1,326 1,290 3% Cost of sales Cost of power purchases (689) (710) Grid charges (310) (285) Other retail costs (304) (276) (1,303) (1,271) 3% Gross profit 23 19 29
Slide 30: 6: Biomass Fuel and Supply – Gross Profit
Appendix 6: Biomass Fuel and Supply – Gross Profit In £m 2016 2015 ▲% Revenue Fuel sales 74 28 74 28 164% Cost of sales Biomass (56) (27) Gross profit 18 1 1,700% 30
Slide 31: 7: ROC Reporting
Appendix 7: ROC Reporting ROC Assets £m At 31 December 2015 270 Generated 536 Utilised or sold (548) At 31 December 2016 258 Balance sheet reconciliation Generated – estimated benefit of generating electricity with biomass Utilised or sold – original estimated balance sheet value charged to cost of
Slide 32: 8: Tax Reconciliation
Appendix 8: Tax Reconciliation In £m (unless Reported Underlying otherwise stated) 2016 2015 2016 2015 Profit before tax 197 59 21 44 Tax at UK CT rate (39) (12) (4) (8) Adjustment to prior year 36 9 4 10 taxes and other Items Tax (charge) / credit (3) (3) - 2 Effective tax rate 2% 5% - 5% UK corpor
Slide 33: 9: Group Balance Sheet
Appendix 9: Group Balance Sheet In £m 2016 2015 ▲% Non-current assets 2,198 1,959 Current assets 1,469 1,278 Current liabilities (883) (763) Non-current liabilities (739) (872) Net assets 2,045 1,602 33% Shareholder’s equity (2,045) (1,602) 33
Slide 34: 10: Opus Energy Financial Summary
Appendix 10: Opus Energy Financial Summary Year-end Year-end Year-end In £m Mar-16 Mar-15 Mar-14 Revenues (£m) 573 524 434 Year on year growth % 9% 21% Gross profit (£m) 107 97 79 Gross profit margin % 19% 19% 18% Operating and administrative 73 59 49 expenses (£m) EBITDA (£m) 34 38 30 Operating pro
Slide 35: 11: Contracted Power Sales
Appendix 11: Contracted Power Sales Contracted at 9 February 2017 2017 2018 Power sales (TWh) 17.8 7.0 - Fixed price power sales (TWh) 16.3 4.4 At an average achieved price (per MWh) £45.0 £42.6 - Gas hedges (TWh) 1.5 2.6 At an achieved price per therm 46.7p 46.3p 35
Slide 36: 12: Power Markets
Appendix 12: Power Markets Power Price (UK) Sum-16 UK power market 75 Win-16 Sum-17 Some recovery in H2 2016, but remains challenging Win-17 65 Sum-18 – Stronger gas and expectations of winter capacity Win-18 55 £/MWh tightness Dispatch dynamics 45 – Reduction in coal plant generation due to lower 3
Slide 37: 13: Gas Markets
Appendix 13: Gas Markets Global gas Global Gas Pricing JCC Indexed Brent Indexed hist 25 Asia LNG spot Delays to LNG projects supporting spot prices NBP hist 20 HHUB hist French nuclear issues and cold weather in NBP forward mainland Europe 15 $/mmbtu Asia-Europe spread narrowed in 2016 10 5 UK gas
Slide 38: 14: Coal Markets
Appendix 14: Coal Markets UK coal production and demand falling Coal Prices (API2) 90 Reduced generation demand 80 Fall in net imports 70 $/tonne 60 Global coal markets remains oversupplied 50 40 Cal 16 Chinese policy changes and imports driving global Cal 17 coal markets 30 Cal 18 20 Jan-15 Jul-15
Slide 39: 15: Carbon Markets
Appendix 15: Carbon Markets Phase III EU ETS Carbon Price (EUA) Dec-16 10 Dec-17 Market remains over supplied Dec-18 8 Auction volumes increasing in 2016 6 €/tonne Price volatility around major political events 4 2 Phase IV EU ETS 0 Political work continues to reach agreement Jan-15 Jul-15 Jan-16 Ju
Slide 40: 16: Forward Spread Movements
Appendix 16: Forward Spread Movements Summer 16 Clean Spark Spread Summer 16 Dark Green Spread Winter 16 Winter 16 15 Summer 17 15 Summer 17 Winter 17 Winter 17 13 Summer 18 13 Summer 18 Winter 18 Winter 18 11 11 9 9 £/MWh £/MWh 7 7 5 5 3 3 1 1 (1) (1) (3) (3) (5) (5) Jan-15 Jul-15 Jan-16 Jul-16 Jan
Slide 41: 17: Commodity Price Movements
Appendix 17: Commodity Price Movements Sum-16 Dec-16 Power Price (UK) Carbon Price (EUA) Win-16 Dec-17 75 10 Sum-17 Dec-18 Win-17 65 Sum-18 8 Win-18 55 6 €/tonne £/MWh 45 4 35 2 25 0 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Source: Brokered Trades Source: ICE Sum-16 Cal
Slide 42: 18: Coal Capacity and IED
Appendix 18: Coal Capacity and IED Installed Operational Supplementary Balancing IED(1) Installation Operator Fuel Capacity in 2017 Closure - Status Reserve Decision (GWe) (GWe) Rugeley Engie Coal 1.0 - Closed summer 2016 - TNP(2) Ferrybridge Scottish & Southern Energy Coal 2.0 - Closed March 2016 -
Slide 43: Preliminary Results
Preliminary Results 12 Months Ended 31 December 2016 16 February 2017