Slide 1: Preliminary Results 12 Months Ended 31 December 2015
Preliminary Results 12 Months Ended 31 December 2015 23 February 2016
Slide 2: Agenda
Agenda Operations and Business Review Dorothy Thompson Chief Executive Financial Review Will Gardiner Chief Financial Officer Biomass – the Reliable Renewable Dorothy Thompson Drax Group plc 2
Slide 3: Overview
Overview Dorothy Thompson – Chief Executive Drax Power EBITDA Severe deterioration in commodity markets LEC removal and delayed CfD approval £169m Strong operations Mitigating actions Underlying Earnings Per Share Haven Power 11.3p Long-term sales target achieved Total Dividends Drax Biomass Operati
Slide 4: Operations and Business Review
Operations and Business Review
Slide 5: Safety and Sustainability
Safety and Sustainability Safety Wood as a Source of Energy(2) Maintaining very good safety performance N'lands UK • Strong UK / improved US performance Ireland • TRIR(1) – 0.31 (2014: 0.33) Germany Belgium • Consistently in top quartile of peer group Greece France Slovakia Sustainability Spain Czec
Slide 6: Drax Power – Commodity Markets
Drax Power – Commodity Markets Commodity markets Power Prices • Warm and windy weather 65 • Lowest coal spreads since Drax listing 55 SUM 15 • Weak gas and coal markets WIN 15 £/MWh SUM 16 Forward power sales 45 WIN 16 • RO units: 18-24 months SUM 17 35 • CfD unit: provides additional hedge for 1 un
Slide 7: Drax Power – Biomass
Drax Power – Biomass Strong Operations Generation by Fuel Type Generation 2015 2014 Predominantly biomass fuelled from Q4 2015 (Net Sales) TWh % TWh % Reliable, responsive generation Coal 15.2 57% 18.8 71% CfD necessary to underpin acceleration of Biomass 11.5 43% 7.9 29% long-term biomass supply ch
Slide 8: Drax Power – Coal
Drax Power – Coal Strong operations Generation by Fuel Type Generation 2015 2014 Response to new market conditions (Net Sales) TWh % TWh % • Focus on operational flexibility - Capture peaks, avoid low value periods Coal 15.2 57% 18.8 71% - Increased prompt market opportunities Biomass 11.5 43% 7.9 2
Slide 9: Haven Power – Retail
Haven Power – Retail Credit-efficient route to market Haven Power Sales 16 Retail sales 13.8TWh (2014: 11.8TWh) 14 • I&C and SME markets(1) 12 • 13TWh contracted for 2016 10 • Retail sales £1.3bn (2014: £1.1bn) TWh 8 2015 – sales target achieved 6 13.8 11.8 • Continued good progress with large contr
Slide 10: Drax Biomass – Biomass Self-supply
Drax Biomass – Biomass Self-supply US Gulf Amite Pellet Plant Port facility and pellet plants • Commissioned and operational • Baton Rouge port – 3Mt pa export facility • Amite and Morehouse pellet plants – each 450kt pa - Supplying first and second converted units • Pellet production increasing Bat
Slide 11: Financial Review
Financial Review Will Gardiner
Slide 12: 2015 Financial Highlights
2015 Financial Highlights EBITDA 2015 Action taken to mitigate market and £169m regulatory headwinds • Solid hedge • Strong and flexible operations Underlying EPS(1) • Increasing biomass generation 11.3p • RCF(3) refinancing complete Total Dividends 5.7p (£23m) 2016 Final dividend 0.6p (£2m) Operati
Slide 13: Group Income Statement
Group Income Statement 2015 2014 Income Statement ▲% £m £m Revenue 3,065 2,805 Gross Profit 409 449 EBITDA 169 229 (26)% Depreciation and Losses on Disposal (108) (80) Net Finance Costs (17) (29) Underlying Profit Before Tax 44 120 Underlying Tax Credit / (Charge) 2 (24) Underlying Tax Rate (%) - 20
Slide 14: Drax Power – Gross Profit
Drax Power – Gross Profit 450 440 434 (54) 430 41 (31) 420 410 £m 400 390 390 380 370 360 350 (2) 2014 Gross Profit Net Power Revenue (1) Net Fuel Cost Carbon Cost 2015 Gross Profit 1) Revenue includes sales to Haven Power of £863m (2014: £735m). Bar also includes net impact on gross margin of other
Slide 15: Adding Value in a Low Spread Environment
Adding Value in a Low Spread Environment Challenging market for coal generators 2015 Power Revenues • Lowest coal spreads since Drax listing 51 • High cost of carbon 50 Actions taken to improve coal margins • Flexible operations – near term activity £/MWh 49 - Sell forward power - Prompt market: cap
Slide 16: Group Operating Costs
Group Operating Costs 2014 - 2016 Operating Costs Development and Guidance 260 10 (20) 250 5 5 240 240 5 £m 10 230 220 220 210 2014 US 4 Planned Other 2015 US 2 Major Planned Cost 2016 Costs Outages Costs Outages Reduction Guidance Incl. 1 Major Outage Drax Group plc 16
Slide 17: Group Capex
Group Capex Biomass transformation will be delivered in Total Capex 2016 – in line with original cost guidance 250 £650m - £700m 200 • 3 unit conversions, US pellet investments and 150 IED(1) compliance £m 100 2015 capex £174m • Includes accelerated IED compliance and biomass 50 optimisation - 2016
Slide 18: Group Cash Flow
Group Cash Flow 500 75 (86) 450 400 169 (4) (179) 350 £m 300 250 221 (12) 200 (50) 150 134 100 Opening EBITDA Working ROCs Tax Capex Debt Dividends Closing Cash(1) Capital / LECs Payments Service Cash(1) / Other 1) Cash and cash equivalents plus short-term investments Drax Group plc 18
Slide 19: Financing and Working Capital Management
Financing and Working Capital Management Term Loan Maturity Profile Debt facilities 350 £400m working capital and LC(1) facility 300 • Refinanced December 2015 – matures in 2019 250 • Improved pricing 200 £m £325m of term loans 150 • Smooth repayment profile 100 Commodity trading line 50 0 Credit ra
Slide 20: Financial Summary and Outlook
Financial Summary and Outlook Difficult commodity markets expected to persist in 2016 Biomass Infrastructure at Drax • Full year impact of LEC removal • CfD approval will provide significant support Actions taken will support 2016 financial outcome • Revenue, cost, capex and working capital initiati
Slide 21: Biomass – the Reliable Renewable
Biomass – the Reliable Renewable
Slide 22: Government Energy Objectives
Government Energy Objectives Requirement UK needs secure, affordable and clean electricity Aim Removal of coal from system by 2025 Reducing coal is desirable but difficult • Crucial to grid stability and security of supply • > 35% of dispatchable generation New gas unlikely to be deployed in time •
Slide 23: Focus on Whole System Costs
Focus on Whole System Costs Affordability is critical to Government Whole system cost DECC Whole System Cost Project • Direct generation costs “DECC recognises the importance of considering • Indirect costs / benefits the whole system impacts (both costs and - Grid connection and losses benefits) of
Slide 24: Critical Importance of Drax
Critical Importance of Drax Coal System support at time of stress Capacity when needed Supports transition to low carbon technologies Biomass Low carbon and sustainable • Largest decarbonisation project in Europe • New biomass technologies deliver sustainable sourcing, logistics and operations - >80
Slide 25: Questions
Questions
Slide 26: Appendices
Appendices 1. Definitions Dust Extraction System 2. IAS 39 Treatment 3. Group Income Statement 4. Drax Power – Gross Profit 5. Haven Power – Gross Profit 6. ROC Reporting 7. Tax Reconciliation 8. 2016 Financial Guidance 9. Power Market 10. Gas Market 11. Coal Market 12. Carbon Market 13. ROC Market
Slide 27: 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 board API2/4/6 (“FOB”) to Richards Bay, South Africa. API6 is the re
Slide 28: Definitions (cont.)
Appendix 1: Definitions (cont.) One of the mechanisms available to implement the LCPD and the one selected by Drax. This sets annual limits NERP NATIONAL EMISSIONS REDUCTION PLAN on the emissions of NOX, SO2 and particulate which will be incorporated into the forthcoming PPC permit. NOx Nitrogen oxi
Slide 29: 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 Hedge Reserve Foreign Exchange Hedge Reserve and Income Statement Carbon Hedge Reserve Gas Income State
Slide 30: Group Income Statement
Appendix 3: Group Income Statement In £m 2015 2014 ▲% Revenue 3,065 2,805 Cost of Sales (2,656) (2,356) Gross Margin 409 449 Operating Costs (240) (220) EBITDA 169 229 (26)% IAS39 Unrealised Gains on Derivative Contracts 124 66 Depreciation and Losses on Disposal (108) (80) Other Items(1) (109) (20)
Slide 31: Drax Power – Gross Profit
Appendix 4: Drax Power – Gross Profit In £m 2015 2014 ▲% Key Metrics Revenue(1) Net sales volume and average Power Sales 2,163 2,080 achieved price - 2015: 26.7TWh (£49.5/MWh) ROC/LEC Sales 452 315 - 2014: 26.7TWh (£51.3/MWh) Ancillary Services Income 14 13 Fuel Sales 2 33 Cost of coal and biomass O
Slide 32: Haven Power – Gross Profit
Appendix 5: Haven Power – Gross Profit Key Metrics In £m 2015 2014 ▲% Retail sales Revenue 1,290 1,090 18% - 2015: 13.8TWh (£93.5MWh) - 2014: 11.8TWh (£92.4/MWh) Cost of Sales Cost of Power Purchases (710) (629) Power purchases Grid Charges (285) (253) - Increase reflects sales growth at a lower cos
Slide 33: ROC Reporting
Appendix 6: ROC Reporting Balance sheet reconciliation 2015 Balance Sheet – ROC and LEC Assets • ROC/LECs generated – estimated benefit of ROC and LEC Assets £m generating electricity with biomass • Sold or utilised – original estimated balance sheet At 31 December 2014 185 value charged to cost of
Slide 34: Tax Reconciliation
Appendix 7: Tax Reconciliation UK corporation tax (CT) rates Tax Reconciliation • 20.25% for 2015 and 21.5% for 2014 Reported Underlying In £m (unless otherwise stated) 2015 2014 2015 2014 2015 tax rate • Underlying rate excludes after tax impact of Profit Before Tax 59 166 44 120 unrealised gains a
Slide 35: 2016 Financial Guidance
Appendix 8: 2016 Financial Guidance Summary Group Opex c.£230m - £240m Group Capex c.£80m - £100m Depreciation c.£110m - £115m Net Interest c.£30m Total Tax Small tax charge / credit Impact of LEC Removal c.£60m on EBITDA Drax Group plc 35
Slide 36: Power Market
Appendix 9: Power Market UK power market Power Prices 65 Challenging commodity markets driven by oil and gas SUM 15 55 Dispatch dynamics WIN 15 • £/MWh Reduction in coal plant generation due to lower SUM 16 dark green spreads and coal-to-gas switching 45 WIN 16 • Introduction of Supplemental Balanci
Slide 37: Gas Market
Appendix 10: Gas Market Gas prices at lowest level since 2003 Global gas prices 20 • Continued oversupply 18 • OPEC unwilling to give up market share 16 despite increased US shale production 14 $/mmbtu • Lower oil prices filter through to gas 12 contracts with an oil-indexation element 10 8 LNG pric
Slide 38: Coal Market
Appendix 11: Coal Market Global coal markets remain oversupplied Seaborne Steam Coal Imports • Seaborne market looking at Asia for demand 25 growth 20 Million Metric Tonnes • Columbian production increase • Strength of USD is protecting some producers 15 from weak coal prices 10 • Freight costs cont
Slide 39: Carbon Market
Appendix 12: Carbon Market Phase III EU ETS EUA Carbon Prices • MSR(1) approved, commences January 2019 10 - Polish legal challenge launched 9 • Market oversupply remains at 2.1bn Dec-14 8 €/tonne Dec-15 Phase IV EU ETS 7 • COP21 in Paris outcome does not require any Dec-16 changes to EU ETS Phase I
Slide 40: ROC Market
Appendix 13: ROC Market CP14 ROC market 2015 ROC prices from eROC monthly auction • Wind generation (offshore and onshore) 43.6 160,000 remains the dominant source of ROCs 140,000 43.2 • Material increase in solar PV generated Monthly traded volume 120,000 ROCs, up to 8% 42.8 100,000 £/ROC CP15 ROC
Slide 41: Forward Spread Movements
Appendix 14: Forward Spread Movements Dark Green Spread Green Spark Spread 20 7 6 15 5 4 10 £/MWh 3 £/MWh 2 5 1 0 0 (1) (5) (2) Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Summer 15 Winter 15 Summer 16 Summer 15 Winter 15 Summer 16 Winter 16 Summ
Slide 42: Commodity Price Movements
Appendix 15: Commodity Price Movements Power Prices Coal Prices (API 2) 65 100 SUM 15 90 Cal 15 55 WIN 15 80 Cal 16 £/MWh SUM 16 $/tonne 70 45 WIN 16 Cal 17 60 SUM 17 35 50 Cal 18 WIN 17 40 25 30 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Sources: Brokered Trades, Spectron
Slide 43: Coal Capacity and IED
Appendix 16: Coal Capacity and IED Installed Capacity Operational Supplementary Balancing IED Installation Operator Fuel Closure - Status (GWe) in 2017 (GWe) Reserve Decision Rugeley Engie Coal 1.0 - Closing in early summer 2016 - TNP U1,2 & 4 closed, U3 closing in Ferrybridge Scottish & Southern En
Slide 44: Carbon Price Floor (CPF)
Appendix 17: Carbon Price Floor (CPF) . Introduced in Budget 2011 HMT Projected Carbon Price Floor to 2020 – effective April 2013 with CPS and EU ETS 45 Climate Change Levy (CCL) amended to 40 indirectly supplement EU ETS carbon price 35 £/tonne CO2 • Based on fuel (coal) consumption 30 25 Carbon Pr
Slide 45: Preliminary Results
Preliminary Results 12 Months Ended 31 December 2015 23 February 2016