Slide 1: Preliminary Results Year Ended 31 December 2011
Preliminary Results Year Ended 31 December 2011 21 February 2012
Slide 2: Agenda
Agenda 2011 Business and Market Review Regulation and Biomass Dorothy Thompson Chief Executive 2011 Financial Review Tony Quinlan Finance Director 2 Drax Group plc Preliminary Results – Year Ended 31 December 2011
Slide 3: 2011 Business Review
2011 Business Review Dorothy Thompson - Chief Executive 2011 profits maximised by EBITDA continued operational excellence £334m Strong hedge for 2012 at good margins; little market visibility beyond 2013 Underlying Earnings Per Share Preparation for biomass expansion 55.5p now well advanced Stand re
Slide 4: 2011 Business Review: Operational Performance
2011 Business Review Operational Performance Maintaining world class standards Safety Performance 0.6 of safety and availability 2008 Global Coal Power Plant First Quartile TRIR (1) – Solomons LLC 0.5 88% Availability (2010: 92%) 0.4 0.3 5.8% Forced Outage Rate (2010: 3.4%) 0.2 6.2% Planned Outage
Slide 5: 2011 Business Review: Project Activity
2011 Business Review Project Activity Turbine upgrade now completed for 5 units Goole pellet plant operating well Widened efficiency gap between Strong technical learning Drax and 24GW of other coal plant Cost effective UK sourcing Final turbine upgrade in 2012 Total project cost c.£100m C
Slide 6: 2011 Business Review: Haven Power Update
2011 Business Review Haven Power Update Credit efficient route to market Implementation of new IT platform on track Credit risk more controllable Capability to support c.20TWh business than collateral risk Contract Entry System complete and in service New system now c.50% current billings (b
Slide 7: 2011 Business Review: Trading
2011 Business Review Trading Positions Under Contract as at 15 February 2012 2012 2013 2014 Power Sales - TWh 22.0 9.1 3.0 Comprising: Fixed price TWh at average achieved price £ per MWh 15.1@ 54.5 6.5 @ 52.7 0.4 @ 57.6 Fixed margin and structured contracts TWh 6.9 2.6 2.6 Carbon – TWh equivalen
Slide 8: Market Review: Power
Market Review: Power UK power market Range of Market DGS and GSS by Efficiency (Baseload) 25 Power prices continue to be driven 20 (1) Efficiencies by gas market DGS GSS 15 Despatch dynamics 10 40% 58% £/MWh 5 Plant efficiencies significant factor in load profiles 0 36% 49% Different load fact
Slide 9: Market Review: Gas
Market Review: Gas Winter 2011 – Exceptionally Mild Weather Q4 UK gas prices lower than July 2011 19 Weather – 2011 second mildest year 15 High storage inventories Temperature (◦C) Record LNG imports 11 But UK prices remain at premium to US 7 Continued decline of UKCS 3 Exports to the cont
Slide 10: ROC Banding Review Consultation
ROC Banding Review Consultation DECC Conclusions and Proposals Consultation published October 2011 DECC stated intent to minimise impact on customer bills by supporting most cost effective technologies Explicit recognition of strategic benefits of biomass “We should […] increase generation in existi
Slide 11: ROC Banding Review: Drax Response and Legislative Timeline
Major investment only ROC Banding Review with appropriate Drax Response and Legislative Timeline regulatory support Drax consultation response – co-firing / conversion: At 1.0 ROC Drax can increase co-firing Moderate uplift in ROC support required to maximise potential Drax consultation response
Slide 12: Biomass R&D Work: Progress Update
Major investment only Biomass R&D Work with appropriate Progress Update regulatory support Combustion trials Illustration of a Single Category of Fuel Specification Testing concentration, reliability and flexibility Analysis of complex chemistry of biomass Ash combustion for extensive biomass fu
Slide 13: Biomass Sourcing: Supply Chain
Major investment only Biomass Sourcing with appropriate Supply Chain regulatory support Overseas Overseas Fibre Harvesting Pellet plant Shipping UK port UK rail rail port Supply chain immature and bespoke Diverse geographies and fibre sources International port, shipping, UK port Early concentra
Slide 14: Biomass Sustainability
Biomass Sustainability 2011 Update All Drax biomass procured against industry- leading sustainability policy, including: Life cycle GHG(1) emission requirements across entire supply chain 60% reduction against EU Fossil Fuel Comparator Land use and biodiversity assessment Independent audit o
Slide 15: Biomass Capacity Development: Capital Investment
Major investment only Biomass Capacity Development with appropriate Capital Investment regulatory support Phase 1: £50m (in 2012) Phase 2: Up to a further £450m Secure full benefit from existing Increase capacity to become co-firing facilities predominantly biomass £50m investment to enable qualif
Slide 16: Future Developments: IED and CCS
Future Developments IED and CCS Industrial Emissions Directive (“IED”) More stringent emissions standards (NOx and SOx) from 2016 EU agreed flexibility measures – better idea of compliance options Assessment of IED technical solutions also well advanced Principal solution drivers – fuel mix and
Slide 17: Strategic Capital Investment Plan
Major investment only Strategic Capital Investment Plan with appropriate Tony Quinlan – Finance Director regulatory support Committed investment for 2012 Components of Potential Biomass capacity development (Phase 1) Capital Investment £m Secure full benefit from existing co-firing facilities Co
Slide 18: 2011 Financial Review – Highlights
2011 Financial Review – Highlights EBITDA Net Cash (2) £334m £225m Underlying Earnings Per Share (1) Total Dividends 55.5p 27.8p/share (£101m) Eurobond tax position agreed Final Dividend Bank refinancing complete 11.8p/share (£43m) (1) Excludes unrealised gains on derivative contracts totalling
Slide 19: 2011 Financial Review: Summary Income Statement
2011 Financial Review Summary Income Statement % Year- In £m (unless otherwise stated) 2011 2010 on-Year Revenue 1,836 1,648 11% Cost of Sales (1,335) (1,097) 22% Gross Margin 501 551 (9%) Operating Costs (167) (159) 5% EBITDA 334 392 (15%) IAS39 Unrealised Gains / (Losses) on Derivative Contracts 8
Slide 20: 2011 Financial Review: Revenue
2011 Financial Review Revenue In £m (unless otherwise stated) 2011 2010 Power Prices 70 Total Revenue 1,836 1,648 60 Wholesale Power Sales 1,471 1,458 £/MWh Retail Power Sales 275 124 50 Electrical Output (Net Sales) (TWh) 26.4 26.4 40 Average Achieved Price (£ per MWh) 55.6 51.6 30 Nov 10 Nov 11 Ja
Slide 21: 2011 Financial Review: ROC Cash Flows and Accounting
2011 Financial Review ROC Cash Flows and Accounting ROC generation measured in annual ROC Buy-out Price and Market Price compliance periods (April – March) 60 ROC cash flows typically 6 months after 50 annual compliance period ends 40 £/M Wh Impacts working capital 30 Drax historically recognised
Slide 22: 2011 Financial Review: Cost of Sales and Fuel Costs
2011 Financial Review Cost of Sales and Fuel Costs 2011 2010 Coal Prices 140 Total Cost of Sales £1,335m £1,097m 120 $/t o n n e Fuel and Carbon Costs £1,021m £841m 100 80 Cost of Power Purchases £172m £165m 60 J an 10 J ul 10 O c t 10 J an 11 J ul 11 O c t 11 J an 12 Apr 10 Apr 11 Grid Charges and
Slide 23: 2011 Financial Review: Operating Costs and Capital Investment
2011 Financial Review Operating Costs and Capital Investment Operating Costs – £167m in 2011 Operating Costs 180 Continued tight cost control 2011 total cost increase £8m due to: 160 Underlying costs: down £2m £'m Investment in growth: Haven, biomass R&D: +£10m 140 Operating cost guidance
Slide 24: 2011 Financial Review: Financial Impact of Biomass R&D Work
2011 Financial Review Financial Impact of Biomass R&D Work Combustion trials: co-firing at high levels with Costs of Biomass R&D Work 2011 variety of fuels on one unit – total cost £19m 0.6Mt biomass burnt in trials in 2011 Capitalised Costs – included in asset additions £5m Capitalised costs: £5m
Slide 25: 2011 Financial Review: Cash Flow
2011 Financial Review Cash Flow 700 600 500 400 £'m 300 200 100 0 Opening Cash EBITDA Working Tax Capex Debt Service Dividends Closing Cash capital and ROCs Working Capital and ROCs Tax and Capex Debt Service Dividends Closing Cash (£51m) (£112m) (£146m) (£124m) £233m (1) Coal stocks (£24m) Tax £68m
Slide 26: H1 Exceptional Tax Credit and July 1 Refinancing
2011 Financial Review H1 Exceptional Tax Credit and July 2011 Refinancing Eurobond tax position agreed with 2011 exceptional tax credit of £198m HMRC April 2011 – recovery £180m Full recognition of Eurobond agreement Also includes £18m other legacy tax issues Cash saved to Dec 2011 of c.£148m no
Slide 27: 2011 Financial Review: Summary
2011 Financial Review Summary 2011 profitability maximised by continued operational excellence and tight cost control Strong hedge in place for 2012 at good margins Little visibility in commodity markets beyond 2013 Strong balance sheet Net cash of £225m Total dividends for 2011 of 27.8p / share
Slide 28: Conclusion: Low Carbon, Low Cost
Major investment only Conclusion with appropriate regulatory support 2011 profits maximised by Low Carbon continued operational excellence Low Cost Strong hedge for 2012 at good margins; little market visibility beyond 2013 Preparation for biomass expansion now well advanced Stand ready to expand re
Slide 29: Questions
Questions
Slide 30: Appendices
Appendices 1. Definitions 2. Financial Calendar 3. IAS39 Treatment 4. Commodity Markets 5. Gas Market 6. Coal Market 7. Carbon Market 8. Carbon Price Support 9. UK Generation Capacity 10. Biomass Development 11. Biomass Fuels 12. Tax Account Reconciliation 13. ROC Banding Review - Proposed Bands 14.
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 2012 Annual General Meeting 18 April Ordinary shares marked ex-dividend 25 April Record date for final dividend 27 April Final dividend payment date 11 May Interim Management Statement Mid May Announcement of Half Year Results 31 July Interim Management Statement
Slide 34: 3: IAS39 Treatment
Appendix 3: IAS39 Treatment Financial Location of gains and losses in the 2011 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 Interest Rate Swaps Largely In
Slide 35: 4: Commodity Markets
Appendix 4: Commodity Markets UK Forward Spread Movements – to 10 February 2012 Dark Green Spread Green Spark Spread 25 24 20 19 15 14 £/MWh £/MWh 10 9 5 4 0 -1 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Summer 10 Winter 10 Summer 11 Winter 11 SummerSummer 12 10 Winter 12
Slide 36: 4: Commodity Markets
Appendix 4: Commodity Markets Commodity Price Movements – to 10 February 2012 Forward Power Price Forward Coal Price (API 2) 80 160 70 Sum 10 140 60 Win 10 50 Sum 11 120 Cal 11 $/tonne £/MWh 40 Win 11 100 Cal 12 30 Sum 12 Cal 13 Win 12 80 20 Sum 13 10 60 Win 13 0 40 Jan-10 Jul-10 Jan-11 Jul-11 Jan-1
Slide 37: 5: Gas Market
Appendix 5: Gas Market European to UK Gas Price Differentials Spot EBPTM Index v. UK Spot Gas (NBP) Differential 70 60 50 40 30 ppt 20 10 0 Jan-08 Mar-08 May-08 Jul-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Nov-11 Jan-12 Sep-08 Sep-09
Slide 38: 6: Coal Market
Appendix 6: Coal Market Steam Coal International traded market (c.0.8bnt) Quarterly Chinese Seaborne Imports – small relative to world consumption (> 7bnt(1)) 40,000,000 35,000,000 Asian demand growth continues to impact 30,000,000 pricing dynamics metric tons 25,000,000 20,000,000 China again a b
Slide 39: 6: Coal Market
Appendix 6: Coal Market API2, API4, Implied Freight Calendar 2012 ($/t) 160 20 140 120 Implied Freight ($/Tonne) 100 API2 and API4 ($/Tonne) 80 10 60 40 20 0 0 Nov-10 Nov-11 Jan-10 Jun-10 Jul-10 Jan-11 Jun-11 Jul-11 Jan-12 Feb-10 Mar-10 Apr-10 May-10 Aug-10 Sep-10 Oct-10 Dec-10 Feb-11 Mar-11 Apr-11
Slide 40: 7: Carbon Market
Appendix 7: Carbon Market EUA movements since January 2010 Lowest EUA price for over 2 years 22 Certified Emission Reductions (CER) below 20 18 perceived floor price € / to n ne 16 14 Driven by expected Phase II over supply 12 10 Fear over European economies 8 New Entrant Reserve (300Mt) now 6
Slide 41: 8: Carbon Price Support
Appendix 8: Carbon Price Support . 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 set annually £20 – 2 years in
Slide 42: 9: UK Generation Capacity
Appendix 9: 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 – 30 Jan 2012) Drax Drax Power Coal 3870 3870 3870
Slide 43: 10: Biomass Development
Appendix 10: Biomass Development Completion of R&D for direct injection of Installation and Launched biomass 400MW co-firing biomass independent of coal operation of second sustainability programme facility (June) milling equipment direct injection facility Investment in 100,000t Launch of energy cr
Slide 44: 11: Biomass Fuels
Appendix 11: Biomass Fuels Forestry Residuals Agricultural By-products Energy Crops & Organic Waste Forestry Wheat/Oat Miscanthus & thinnings straw switchgrass Harvesting Sunflower residues husks Bamboo Chips/ Sugarcane Jatropha Sawdust bagasse Bark Rice Short Rotation Coppice straw (e.g. Willow) Wo
Slide 45: 12: Tax Account Reconciliation
Appendix 12: Tax Account Reconciliation Eurobond tax position agreed with 2011 exceptional tax credit of £198m HMRC April 2011 – recovery £180m Full recognition of Eurobond agreement Also includes £18m other legacy tax issues Cash saved to Dec 2011 of c.£148m released now resolved (non-cash)
Slide 46: 13: ROC Banding Review – Proposed Bands
Appendix 13: ROC Banding Review – Proposed Bands Level of ROCs / MWh Technologies Current Band DECC Proposal Offshore wind 2.0 2.0 – 1.8 Onshore wind 1.0 0.9 Co-firing 0.5 0.5 (< 15%) Enhanced n/a 1.0 co-firing (>15%) Conversion n/a 1.0 (>90%) Dedicated biomass 1.5 1.5 – 1.4 Proposal is for all supp
Slide 47: 14: ROC Mechanics
Appendix 14: ROC Mechanics Renewable Obligation and Output Renewables Obligation (RO) – 40 suppliers must source increasing 30 volume of renewable power ROCs (m) Obligation can be met in two ways; 20 Surrender ROCs or pay a buy-out 10 All buy-out funds recycled to suppliers that surrender ROCs 0 C
Slide 48: 15: Cost Benchmarking
Appendix 15: Cost Benchmarking Operating Cost Development (normalised for outages) Benchmarking demonstrates careful 180 cost management 170 Cost per generating unit improvement 160 150 from 3rd to 1st quartile in 2009 study £m 140 Remain 1st quartile in 2011 update 130 – aligned with global bes
Slide 49: Disclaimer
Disclaimer These presentation slides (and any subsequent discussions arising thereon) may contain certain statements, statistics and projections that are or may be forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future fi
Slide 50: Preliminary Results Year Ended 31 December 2011
Preliminary Results Year Ended 31 December 2011 21 February 2012