Drax Group Plc · LSE:DRX
Drax — H1 2021 Earnings Presentation
49 slides from Drax's earnings presentation, Jul 29, 2021
Slide 1: Half Year Results
2021 Half Year Results 29 July 2021
Slide 2: Agenda Presenters
Agenda Presenters Operational Review Will Gardiner, CEO Financial Review Andy Skelton, CFO Strategy Update 29 July 2021 2
Slide 3: 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 4: Our Purpose, Our Strategy, Our Ambition
Our Purpose Enabling a zero carbon, lower cost energy future Our Strategy We will build a long-term future for sustainable biomass We will be the leading provider of power system stability We will give our customers control of their energy Our Ambition To be a carbon negative company by 2030 29 July
Slide 5: Operational Review
Operational Review 29 July 2021 5
Slide 6: H1 2021 Highlights
H1 2021 Highlights Good operational and financial performance Substantially a pure play renewable and the world’s leading sustainable biomass generation and supply business Financial Operations Strategic 4% increase in Adjusted EBITDA Pellet Production Acquisition of Pinnacle 8% reduction in product
Slide 7: Progress Towards a Carbon Negative Future
Progress Towards a Carbon Negative Future European utility CO2 intensity (tCO2e/GWh) >90% reduction in generation emissions since 2012 1,000 800 End of commercial coal operations and sale 600 Drax of gas generation assets targeting carbon 400 negative by 2030 200 Generation portfolio – biomass and h
Slide 8: Sustainability
Sustainability Long-term commitment to safety and sustainability underpins strong and improving ESG credentials Safety is key Focus on renewables Further decarbonisation UN Sustainable Development Goals Renewable generation (%) Generation carbon intensity Total Recordable Incident Rate (tCO2/MWh) (S
Slide 9: Generation: UK's largest source of renewable power by output
Generation Adjusted EBITDA(1) System support(2) % of UK UK’s largest source of renewable power by output renewables £185m £70m (H1-20: £214m) (H1-20: £66m) 12%(3) (Q2 2019 to Q1 End of commercial coal generation and sale of gas assets 2020: 12%) Biomass operational performance - CfD – 97% availabili
Slide 10: Pellet Production – a Major Producer and Supplier of Biomass to Customers Globally
Pellet Production – a Major Producer and Supplier of Biomass to Customers Globally An enlarged and geographically diversified supply chain 4.9Mt capacity (from 2022) – 17 pellet plants across 3 major fibre baskets and 4 deep water ports Canada United States NW Territories South British Arkansas Alab
Slide 11: Pellet Production – Global reach with long-term supply contracts
Pellet Production – a Major Producer and Supplier of Biomass to Customers Globally Global reach with long-term supply contracts into Asia, Europe and UK Drax customers US$4.3bn of contracted sales to customers Significant contracted volumes beyond 2027 High-quality Japanese, Korean and European cust
Slide 12: Pinnacle Integration
Pinnacle Integration Prioritise safe, efficient and sustainable operation of the enlarged supply chain Continuity of production - Focus on best practice – H&S, operational efficiency and sustainability Continuity of management - Operations consolidated under single management structure Establish fut
Slide 13: Pellet Production – Operational Review of H1-21
Pellet Production – Operational Review of H1-21 Increased production capacity and cost reduction accelerated by acquisition of Pinnacle Strong operational and financial performance(1) Adjusted EBITDA Pellet production Production cost - 70% increase in production £40m 1.3Mt $141/t(2) - 8% reduction i
Slide 14: Customers
Customers Delivering decarbonisation services to a high-quality I&C customer base, managing impact of Covid-19 on SME portfolio Expect to return to profit at Adjusted EBITDA level in 2021 Well positioned to support key sectors manage their Drax Customers – strong growth prospects in I&C portfolio en
Slide 15: Financial Review
Financial Review 29 July 2021 15
Slide 16: Financial Summary
Financial Summary Strong financial performance Interim Dividend Total Cash and 7.5p/share (£30m) Committed Facilities (H1-20: 6.8p/share, £27m) June 2021 Adjusted £666m Continue to expect EBITDA(1/2) (H1-20: £694m) around 2x Net Debt to Adjusted EBITDA £186m Expected Full Year Dividend Adjusted by e
Slide 17: Adjusted EBITDA Bridge H1-20 to H1-21
Adjusted EBITDA Bridge H1-20 to H1-21 £m 200 15 32 30 6 5 2 61 100 179 186 0 H1-20 Pellet Biomass Pumped Storage Thermal Customers Corporate Innovation H1-21 Adjusted EBITDA Production Generation & Hydro Generation & other Adjusted EBITDA Generation Pellet Production Generation Customers Corporate a
Slide 18: Continued Focus on Biomass Cost Reduction
Continued Focus on Biomass Cost Reduction Existing expansion plans for lower cost capacity, operational efficiencies and addition of Pinnacle drive continued reductions Targeting run-rate savings of $35/t ($64m) of savings 15% reduction in FOB $/tonne production cost in 2.5 years on 1.8mt self-suppl
Slide 19: Capital Investment
Capital Investment Investment to drive operational efficiency, strategic initiatives and growth 2021 estimates Key areas Investment Maintenance Maintain operational performance £70-80m Enhancement Efficiency and operational improvements £20m Biomass self-supply £60-70m Strategic Pinnacle £40m Other
Slide 20: Balance Sheet
Balance Sheet Long-term structures in place to support growth Continue to expect Facilities in place to support growth and decarbonisation around 2x net debt £666m cash and Maturity profile - Infrastructure facilities extend maturity profile to 2030 to Adjusted EBITDA committed facilities to 2030 -
Slide 21: 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 29 July 2021 21
Slide 22: Strategy Update
Strategy Update 29 July 2021 22
Slide 23: Positioning Drax for Growth
Positioning Drax for Growth Growth opportunities from biomass supply, negative emissions and system support services 2021 >90% reduction in generation emissions since 2012 - Now substantially a fully renewable energy company 2012 UK’s largest source of renewable power by output – multi-site, multi-a
Slide 24: Biomass Has A Critical Role to Play in the Fight Against Climate Change
Biomass Has A Critical Role to Play in the Fight Against Climate Change Drax is a world leader in sustainable biomass Sustainable biomass and BECCS International policy Drax is a world leader in the Healthy managed forests internationally recognised as developments support use of sustainable biomass
Slide 25: Global Need for Biomass and BECCS
Global Need for Biomass and BECCS Potential for significant global demand for sustainable biomass to support negative emission from BECCS Research by Coalition for Negative Emissions shows potential for 2 to 4bn tonnes of negative emissions from BECCS by 2030 Coalition for Negative Emissions Report
Slide 26: Global BECCS Opportunities
Global BECCS Opportunities Drax is exploring opportunities for new-build BECCS and conversions, and technologies globally Bechtel Phoenix BioPower C-Capture Working with Drax to identify Working with Drax to identify turbine Developer of organic solvent opportunities for new international technologi
Slide 27: Development of BECCS at Drax Power Station and CCS Infrastructure in UK
Development of BECCS at Drax Power Station and CCS Infrastructure in UK BECCS at Drax Power Station – two biomass units with BECCS by 2030 – Planning application process commenced – Mitsubishi Heavy Industries selected as solvent technology partner – Commence FEED study late 2021 subject to indicati
Slide 28: Drax Biomass Strategies Informed by Global Role and Market for Biomass
Drax Biomass Strategies Informed by Global Role and Market for Biomass Three complementary models underpinned by ambition to develop a 5Mt self-supply chain at £50/MWh(1) All options underpinned by the sale of biomass at market price to realise best value from supply chain Global growth opportunitie
Slide 29: Outlook
Outlook Financial and operations - Flexible, renewable generation and system support - Safe and sustainable operations, including delivery of planned CfD outage - Increased biomass production and reduced cost - Sustainable and growing dividend Development of biomass strategy - Emerging clarity on re
Slide 30: Half Year Results
2021 Half Year Results 29 July 2021
Slide 31: Appendices
Appendices Group Adjusted EBITDA Contracted Power Sales Group Income Statement – Continuing Operations UK Energy White Paper Group Income Statement Europe: Fit for 55 Package and Third Renewable Energy – Adjusted Results – Continuing and Discontinued Operations Directive (REDIII) Consolidated Adjust
Slide 32: H1 2021 Group Adjusted EBITDA
H1 2021 Group Adjusted EBITDA High-quality, enduring earnings from a multi-technology portfolio and integrated value chain Business unit Assets Capacity EBITDA (£m) % of EBITDA 13 pellet plants in Canada and US, 4.9Mt with additional sites in development Pellet Production 40 22% Access to 4 deep wat
Slide 33: Group Income Statement – Continuing Operations
Group Income Statement – Continuing Operations HY 2021 HY 2020 In £m Adjusted Exceptional Total Adjusted Exceptional Total Revenue 2,177 (3) 2,174 2,103 14 2,117 Cost of sales (1,807) 23 (1,784) (1,736) 80 (1,656) Gross profit 370 20 390 367 94 461 Operating and administrative expenses (197) - (197)
Slide 34: Group Income Statement – Adjusted Results – Continuing and Discontinued Operations
Group Income Statement – Adjusted Results – Continuing and Discontinued Operations HY 2021 HY 2020 In £m Continuing Discontinued Total Continuing Discontinued Total Revenue 2,177 52 2,229 2,103 102 2,205 Cost of sales (1,807) (32) (1,839) (1,736) (68) (1,804) Gross profit 370 20 390 367 34 401 Opera
Slide 35: Consolidated Adjusted EBITDA from Continuing and Discontinued Operations
Consolidated Adjusted EBITDA from Continuing and Discontinued Operations Power Pellet Customers Adjustments(2) Consolidated HY 2021 £m Generation Production Segment Adjusted EBITDA 185(1) 40 (5) (3) 217 Central Costs (22) Innovation and capital projects (9) Consolidated Adjusted EBITDA 186 Power Pel
Slide 36: Generation – Adjusted EBITDA
Generation – Adjusted EBITDA In £m HY 2021 HY 2020 Revenue System support and optimisation Power sales 1,252 1,107 £m HY 2021 HY 2020 System support and optimisation 66 85 System support and optimisation ROC sales 191 328 Balancing mechanism, Ancillary Services and 66 85 CfD income 188 157 portfolio
Slide 37: Pellet Production – Adjusted EBITDA
Pellet Production – Adjusted EBITDA Drax pellet production cost In £m HY 2021 HY 2020 USD$ HY 2021 H1-20 Revenues 185 118 Cost of sales ($m) 142 82 Cost of sales (107) (65) Operating costs ($m) 52 36 Gross profit 78 53 Total cost ($m) 194 118 Operating costs (38) (28) Other adjustments ($m) (15) (2)
Slide 38: Customers – Adjusted EBITDA
Customers – Adjusted EBITDA In £m HY 2021 HY 2020 Revenue 1,077 1,032 Cost of sales Cost of power and gas purchases (442) (434) Grid charges (232) (229) Other costs (359) (339) Power sales Gas sales (1,033) (1,002) 7.4TWh 1.6TWh Gross profit 44 30 (H1-20: 7.3TWh) (H1-20: 1.5TWh) Operating costs (41)
Slide 39: Group Cash Flow Statement – Continuing and Discontinued Operations
Group Cash Flow Statement – Continuing and Discontinued Operations In £m HY 2021 HY 2020 Adjusted EBITDA(1) 186 179 Working capital and other (48) 47 Cash generated from operations 138 226 Debt service (31) (27) Tax(2) 8 (31) Net cash from operating activities 115 168 Capital investment (64) (59) Di
Slide 40: Group Net Debt Bridge
Group Net Debt Bridge £m 41 1,000 8 458 1,029 31 41 800 776 64 600 186 400 188 200 0 31 Dec 2020 Adjusted Capital Sale of gas Acquisition of Debt Tax Equity Working capital 30 Jun 2021 Net debt EBITDA expenditure Pinnacle service dividends & other Net debt paid 29 July 2021 40
Slide 41: Contracted Power Sales
Contracted Power Sales As at 25 July 2021 2021 2022 2023 Fixed price power sales (TWh) 15.9 9.1 4.3 - CfD 3.8 0.6 - - ROC 10.8 8.4 4.0 - Other 1.3 0.1 0.3 Average achieved price (£/MWh) 51.7 52.4 52.7 29 July 2021 41
Slide 42: UK Energy White Paper
UK Energy White Paper Description of biomass and BECCS By 2022, we will establish the role which BECCS can play in reducing carbon emissions across the economy and, as part of a wider biomass strategy, set out how the technology could be deployed. Biomass is unique amongst renewable technologies in
Slide 43: Europe: Fit for 55 Package and Third Renewable Energy Directive (REDIII)
Europe: Fit for 55 Package and Third Renewable Energy Directive (REDIII) Supports increased use of bioenergy as part of European Commission’s strong environmental mandate In July 2021 the European Commission published its “fit for 55” package of proposals - Package is designed to put in place the po
Slide 44: Sustainable Biomass Sourcing and Carbon Life Cycle
Sustainable Biomass Sourcing and Carbon Life Cycle Science-led biomass sourcing policy ensures long-term sustainability and contribution to natural environment Key principles Biomass generation carbon life cycle - No deforestation - No carbon debt - More standing volume in forest area than before Ob
Slide 45: Sources of Biomass Supply
Sources of Biomass Supply Drax Group sources of fibre by location – H1-21 Drax Group sources of fibre by location – H1-20 Low Low Branches, Branches, Sawmill grade Agri. Sawmill grade Agri. tops and Thinnings Total tops and Thinnings Total residues round residues residues round residues bark bark wo
Slide 46: Forward Commodity Prices
Forward Commodity Prices Seasonal Baseload Power Price (£/MWh) Peak Power Price (£/MWh) 110 120 100 110 90 100 80 90 70 80 60 70 60 50 50 40 40 30 30 20 20 10 10 Jul-19 Oct-19 Jan-20 Apr-20 Aug-20 Nov-20 Feb-21 May-21 Jul-19 Oct-19 Jan-20 Apr-20 Aug-20 Nov-20 Feb-21 May-21 Winter21 Summer22 Winter22
Slide 47: Forward Carbon Prices
Forward Carbon Prices UKA Carbon (£/t) EU ETS Carbon (€/t) 60 70 50 60 50 40 40 30 30 20 20 10 10 May-21 May-21 Jun-21 Jun-21 Jun-21 Jul-21 Jul-19 Oct-19 Jan-20 Apr-20 Aug-20 Nov-20 Feb-21 May-21 Dec21 Dec22 Dec23 Dec21 Dec22 Dec23 Source: ICE Source: ICE 29 July 2021
Slide 48: Merchant Forward Spreads
Merchant Forward Spreads Peak CSS (£/MWh) Peak DGS (£/MWh) Peak ROC Bark Spread (£/MWh) 30 40 110 100 30 90 80 20 20 70 60 10 50 10 40 - 30 20 Jul-19 Jan-20 Aug-20 Feb-21 10 (10) - - Jul-19 Jan-20 Aug-20 Feb-21 (20) Jul-19 Jan-20 Aug-20 Feb-21 Winter21 Summer22 Winter22 Winter21 Summer22 Winter22 Wi
Slide 49: Half Year Results
2021 Half Year Results 29 July 2021