Slide 1: 2021 Full Year Results
2021 Full Year Results 24 February 2022
Slide 2: Presenters
Presenters Will Gardiner: Andy Skelton: Chief Executive Officer Chief Financial Officer 24 February 2022 2
Slide 3: Agenda
Agenda Future Positive Operational Review Financial Review Strategy Update 24 February 2022 3
Slide 4: 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 5: Our Purpose, Our Ambition
Our Purpose Enabling a zero carbon, lower cost energy future Our Ambition To be a carbon negative company by 2030 24 February 2022 5
Slide 6: 2021 Highlights
2021 Highlights Strong financial performance in a transformational year, positioned for low-carbon growth – £398m Adjusted EBITDA Financial – Strong cash generation, liquidity and balance sheet – 10% increase in total dividend Pellet Production – Production output more than doubled – 7% reduction in
Slide 7: Future Positive
Future Positive 24 February 2022 7
Slide 8: Future Positive, People Positive, Nature Positive
Future Positive Strategic ambition underpinned by safety, sustainability and biomass cost reduction - Two new North America based Non-Execu]ve Directors Safety is key - Compliant with Hampton Alexander and Parker recommenda]ons People Positive - Schools programmes and community outreach – UK/North A
Slide 9: Climate Positive
Climate Positive The world’s leading sustainable biomass generation and supply business >95% reduction in generation emissions since 2012 and >90% of generation from renewable and low-carbon sources European utility CO2 intensity (tCO2e/GWh) >£2bn investment in renewables since 2012 1,000 Coal-to-bi
Slide 10: Operational Review
Operational Review 24 February 2022 10
Slide 11: Pellet Production – Geographically Diversified Production Capacity
Pellet Production – Geographically Diversified Production Capacity Strategically located in key sustainable fibre baskets with proximity to Asian and European markets 17 pellet plants and developments with c.5Mt of production capacity - 13 operational plants, 4 commissioning or in development BC Alb
Slide 12: Pellet Production – Operational Review
Pellet Production – Operational Review Increased production capacity, sales to 3rd parties and cost reduction accelerated by acquisition of Pinnacle Strategic progress driving improving operational metrics Adjusted EBITDA Production cost - 107% increase in production £86m $143/t(1/2) - 7% reduction
Slide 13: Pellet Production – Developments
Pellet Production – Developments Capacity expansion and opportunities for further growth Drax operations in US southeast c.0.6Mt of new capacity in US Southeast (2021/22) - LaSalle and Morehouse expansions completed (150kt) - Demopolis plant commissioning (360kt) - 1st satellite plant (Leola) commis
Slide 14: Pellet Production – Strong Long-term Order Book
Pellet Production – Strong Long-term Order Book 3rd party supply and own-use Attractive 3rd party supply business Diversified long-term offtake US$4.5bn of contracted sales to 3rd parties 22Mt of contracted sales to 3rd parties Sales to Asia Contracts extending to mid-2030s Sales to Europe High-qual
Slide 15: Generation – Operations
Generation – Operations Adjusted EBITDA(1) System support(2) % of UK UK’s largest source of renewable power by output £372m £160m renewables (2020: £446m) (2020: £118m) 12%(3) (Q4 2019 to Q3 End of commercial coal generation and sale of CCGT assets 2020: 11%) Biomass operational performance - Major
Slide 16: Generation – Trading and Optimisation
Generation – Trading and Optimisation Forward power sales provide revenue visibility, with operational flexibility for system support services Strong contracted power sales on ROC and hydro 2022-2024 Contracted power sales – 21 Feb 2022 2022 2023 2024 - 20.4TWh contracted at £70.2/MWh (2022-2024) RO
Slide 17: Development of UK BECCS
Development of UK BECCS Drax Power Station – targeting 8Mt pa of negative emissions from BECCS by 2030 Good progress in 2021 2022 milestones Technology Progress workstreams to remain on track for FID in 2024 - Selection of technology partner – Mitsubishi Heavy Industries - Completion of pre-FEED stu
Slide 18: Development of New-build BECCS
Development of New-build BECCS Targeting 4Mt pa of negative emissions from new-build BECCS outside UK by 2030 Good progress in 2021 2022 milestones - Appointed Bechtel to support technical evaluation of - Program of government engagement new-build BECCS outside UK - Site location filtering - Global
Slide 19: Customers
Customers Renewable power and decarbonisation services to high-quality I&C and Corporate customers Good operational and financial performance - Return to profit at Adjusted EBITDA level - Includes industry mutualisation charges from supplier failure and residual impact of Covid-19 100% renewable sup
Slide 20: Financial Review
Financial Review 24 February 2022 20
Slide 21: Financial Summary
Financial Summary Strong financial performance Total Cash and Net Debt Expect to be below 2x Net Committed Facilities December 2021(3) Debt to Adjusted EBITDA December 2021 £1,044m by end of 2022 Adjusted £549m (December 2020: £776m) (2020: £682m) EBITDA(1/2) £398m Adjusted Proposed Final Dividend T
Slide 22: Adjusted EBITDA Bridge 2020 to 2021
Adjusted EBITDA Bridge 2020 to 2021 £m 500 34 45 400 26 45(1) 19 3 300 200 412 398 100 0 2020 Pellet Discontinued Drax Power Station Other generation Customers Innovation, 2021 Adjusted EBITDA Production CCGT - major planned BECCS Adjusted EBITDA generation biomass outage and Other assets Pellet Pro
Slide 23: Continued Reduction in Pellet Production Cost
Continued Reduction in Pellet Production Cost Expect 55% of target $/t cost reductions to be delivered by 2023, with opportunities for further savings US$/t(1/2) 170 Operational efficiencies, improvements, expansion and acquisition - Increased use of sawmill residues 35% of target - Co-location with
Slide 24: Capital Investment
Capital Investment Investment to drive operational efficiency, strategic initiatives and growth 2021 actual Key areas Investment Maintenance Maintain operational performance £77m Enhancement Efficiency and operational improvements £28m Biomass self-supply £57m Strategic Pinnacle £47m Other Safety an
Slide 25: Balance Sheet
Balance Sheet Long-term structures in place to support growth Facilities in place to support growth and decarbonisation - Infrastructure facilities extend maturity profile to 2030 Expect <2x net debt £549m cash and Maturity profile - ESG facilities with margin linked to carbon emissions to Adjusted
Slide 26: Sources and Uses of Cash – Fully Funded Investment Plan to 2030
Sources and Uses of Cash – Fully Funded Investment Plan to 2030 Investment for growth funded by existing cash generation and EBITDA growth consistent with long-term target of 2x net debt Strategic capital investments Sources (2022-2030) - Pellet plants, UK BECCS, Cruachan II Investment and funding -
Slide 27: 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 24 February 2022 27
Slide 28: Strategy Update
Strategy Update 24 February 2022 28
Slide 29: Strategic Objectives
Strategic Objectives Positioning Drax for growth opportunities linked to global renewable energy and decarbonisation initiatives Objective 1: to be a global leader in sustainable biomass pellets Pellet Production - 3rd party sales, own-use, cost reduction, fibre sourcing and technology Objective 2:
Slide 30: A Global Leader in Sustainable Biomass Pellets
A Global Leader in Sustainable Biomass Pellets Significant increase in demand for biomass in industrial wood pellet markets Expansion of biomass supply chain to maximise value of biomass use across three strategies - 3rd party sales - BECCS - Generation Targets - Double sales to 3rd parties from 2Mt
Slide 31: Meeting Pellet Demand Growth
Meeting Pellet Demand Growth Opportunities to maximise value across 3rd party biomass sales, BECCS and generation Demand/Supply Sources Current 2030 Sales to 3rd parties 2Mt 4Mt Demand Own-use UK BECCS (2 units) - 5Mt Own-use generation 7Mt 1-2Mt 9Mt 10-11Mt Drax produced 4Mt 8Mt Supply Other lower
Slide 32: A Global Leader in Negative Emissions
A Global Leader in Negative Emissions Global net zero and 1.5oC strategies will require negative emissions technologies - BECCS, DACS and afforestation - Intergovernmental Panel on Climate Change, Coalition for Negative Emissions and UK Government all identify a clear role for BECCS Targeting 8Mt pa
Slide 33: Negative Emissions – a Trillion Dollar Market Opportunity
Negative Emissions – a Trillion Dollar Market Opportunity Negative emissions are a critical part of the 1.5⁰C climate pathway and BECCS has an essential role Only a portfolio that includes BECCS can meet the negative emissions need The world is starting to value negative emissions, paving the way to
Slide 34: A UK Leader in Dispatchable, Renewable Power
A UK Leader in Dispatchable, Renewable Power Significant increase in demand for power - Electrification of heating and transport - Increasing dependence on intermittent renewables Increasing long-term role for dispatchable, renewable power - Biomass and pumped storage - Targeting option for 600MW of
Slide 35: Milestones for 2022
Milestones for 2022 Biomass pellet production - Expect to take final investment decision on 0.5-1Mt of new capacity - Establishment of Tokyo field office Biomass pellet sales - Establishment of European business development - Expansion of international affairs capability - Continued reduction in pel
Slide 36: Outlook
Outlook Drax strategic objectives closely aligned with net zero policies, providing attractive opportunities for long-term growth UK and international policies increasingly support the use of biomass, BECCS and the role of dispatchable generation - Targeting 4Mt pa of 3rd party pellet sales by 2030
Slide 37: Full Year Results 2021
2021 Full Year Results 24 February 2022
Slide 38: Appendices
Appendices Group Adjusted EBITDA Sustainable Biomass Sourcing and Carbon Life Cycle Group Income Statement – Continuing Operations Global Policies to Address Climate Change Group Income Statement UK Energy Policy – Continuing Operations Consolidated Adjusted EBITDA Sources of Biomass Supply Group In
Slide 39: Group Adjusted EBITDA
Group Adjusted EBITDA High-quality, enduring earnings from a multi-technology portfolio and integrated value chain 2021 2020 Business unit Assets Capacity Adjusted Adjusted EBITDA (£m) EBITDA (£m) 17 pellet plants and developments in c.5Mt Canada and USA Pellet Production Access to 4 deep water port
Slide 40: Group Income Statement – Continuing Operations
Group Income Statement – Continuing Operations 2021 2020 In £m Adjusted Exceptional Total Adjusted Exceptional Total Revenue 5,174 (86) 5,088 4,235 10 4,245 Cost of sales (4,331) 134 (4,197) (3,435) (84) (3,519) Gross profit 843 48 891 800 (74) 726 Operating and administrative expenses (449) (21) (4
Slide 41: Group Income Statement – Adjusted Results – Continuing and Discontinued Operations
Group Income Statement – Adjusted Results – Continuing and Discontinued Operations 2021 2020 In £m Continuing Discontinued Total Continuing Discontinued Total Revenue 5,174 52 5,226 4,235 206 4,441 Cost of sales (4,331) (32) (4,363) (3,435) (127) (3,562) Gross profit 843 20 863 800 79 879 Operating
Slide 42: Consolidated Adjusted EBITDA – Continuing and Discontinued Operations
Consolidated Adjusted EBITDA – Continuing and Discontinued Operations Power Pellet Discontinued Customers Adjustments(1) Consolidated 2021 £m Generation Production Segment Adjusted EBITDA 352 20 86 6 6 470 Innovation, BECCS and Central Costs (72) Consolidated Adjusted EBITDA 398 Power Pellet Discont
Slide 43: Pellet Production – Adjusted EBITDA
Pellet Production – Adjusted EBITDA FOB total cost In £m 2021 2020 USD$ 2021 2020 Revenues 450 231 Cost of sales ($m) 367 164 Cost of sales (267) (127) Operating costs ($m) 132 67 Gross profit 183 104 Total cost ($m) 499 231 Operating costs (97) (52) Other adjustments ($m)(1) (47) (3) Adjusted EBITD
Slide 44: Generation – Adjusted EBITDA – Continuing and Discontinued Operations
Generation – Adjusted EBITDA – Continuing and Discontinued Operations In £m 2021 2020 Revenue System support and optimisation Power sales 3,274 2,164 £m 2021 2020 System support and optimisation 197 146 System support and optimisation ROC sales 881 1,024 System support and optimisation revenues 197
Slide 45: Customers – Adjusted EBITDA
Customers – Adjusted EBITDA In £m 2021 2020 Revenue 2,360 2,119 Cost of sales Cost of power and gas purchases (1,098) (858) Grid charges (510) (464) Other costs (648) (713) (2,256) (2,035) Gross profit 104 84 Operating costs (82) (80) Bad debt charge (16) (43) Adjusted EBITDA 6 (39) 24 February 2022
Slide 46: Group Cash Flow Statement – Continuing and Discontinued Operations
Group Cash Flow Statement – Continuing and Discontinued Operations In £m 2021 2020 Adjusted EBITDA(1) 398 412 Working capital and other (44) 1 Cash generated from operations 354 413 Debt service (60) (59) Tax 12 (48) Net cash from operating activities 306 306 Capital investment (209) (174) Disposal
Slide 47: Group Net Debt Bridge
Group Net Debt Bridge £m (1) 460 62 1,000 12 1,044 209 71 800 60 776 600 398 184 400 200 0 31 Dec 2020 Sale of Acquisition of Adjusted Capital Debt Tax Equity Working capital 31 Dec 2021 Net debt CCGT Pinnacle EBITDA expenditure service dividends & other Net debt generation paid assets 24 February 2
Slide 48: 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 - Positive impacts in the areas where we source Objectives - Reduce C
Slide 49: Global Policies to Address Climate Change
“biomass will have to be a part of our Global Policies to Address Climate Change energy portfolio if we are to remove our dependency on fossil fuels” Sustainable biomass and negative emissions have a key role to play Frans Timmermans – EC Commissioner for Green Deal (November 2021) - Accelerated coa
Slide 50: UK Energy Policy
UK Energy Policy NG Future Energy Scenarios – Negative Emissions - Scenarios consistent with net zero assume To date the UK has been a leader in renewables and the decarbonisation of power large-scale negative emissions Clear Government commitments to negative emissions, biomass and BECCS Consumer T
Slide 51: Sources of Biomass Supply
Sources of Biomass Supply Drax Group sources of fibre by location – 2021(1) Drax Group sources of fibre by location – 2020 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 w
Slide 52: Merchant Forward Commodity Prices
Merchant Forward Commodity Prices Baseload Power Price (£/MWh) Peak Power Price (£/MWh) 300 360 320 250 280 200 240 200 150 160 100 120 80 50 40 0 0 Feb-20 May-20 Aug-20 Nov-20 Mar-21 Jun-21 Sep-21 Jan-22 Feb-20 May-20 Aug-20 Nov-20 Mar-21 Jun-21 Sep-21 Jan-22 SUM-22 WIN-22 SUM-23 WIN-23 SUM-24 SUM-
Slide 53: Merchant Carbon Prices
Merchant Carbon Prices UKA Carbon (£/t) EU ETS Carbon (€/t) 100 110 90 100 80 90 70 80 60 70 60 50 50 40 40 30 30 20 20 10 10 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Feb-20 May-20 Aug-20 Nov-20 Mar-21 Jun-21 Sep-21 Jan-22 Dec-22 Dec-23 Dec-24 Dec-22 Dec-23 Dec-24 Source: ICE S
Slide 54: Merchant Forward Spreads
Merchant Forward Spreads Peak CSS (£/MWh) Peak DGS (£/MWh) Peak ROC Bark Spread (£/MWh) 100 250 350 90 300 80 200 70 250 60 150 200 50 40 100 150 30 100 50 20 50 10 - - - Feb-20 Aug-20 Mar-21 Sep-21 Feb-20 Aug-20 Mar-21 Sep-21 (50) Feb-20 Aug-20 Mar-21 Sep-21 SUM-22 WIN-22 SUM-23 SUM-22 WIN-22 SUM-2
Slide 55: Full Year Results 2021
2021 Full Year Results 24 February 2022