Slide 1: Half Year Results
2020 Half Year Results 29 July 2020
Slide 2: Agenda Presenters
Agenda Presenters Operational Review Will Gardiner, CEO Financial Review Andy Skelton, CFO Biomass Strategy Update 29 July 2020 2
Slide 3: Our Purpose, Strategy and 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 4: Operational Review
Operational Review 29 July 2020 4
Slide 5: 2020 Half Year Performance Highlights
2020 Half Year Performance Highlights Robust performance, delivering for stakeholders, progressing biomass strategy Financial - 30% increase in Adjusted EBITDA to £179m - No change to estimated full year impact of Covid-19 on Adjusted EBITDA – c.£60m - High level of contracted revenues 2020-2022 - S
Slide 6: Covid-19
Supporting the energy system - Flexible, renewable and low-carbon electricity 24/7 - System support services - Maintained fully operational international supply chain Covid-19 Employees - No furloughing Supporting all stakeholders - Implemented established business continuity plan for social distanc
Slide 7: Customers
Customers Supporting customers, managing impact of Covid-19, focus on underlying strength in portfolio Adjusted EBITDA Principal impact of Covid-19 reflected in SME business in H1-20 - Reduction in demand £(37)m (H1-19: £9m) - MtM cost to exit previously hedged power contracts - Increased bad debt p
Slide 8: Safety, Sustainability and ESG
Safety, Sustainability and ESG Achieving a positive long-term economic, social and environment impact UN Sustainable Development Goals (SDGs) Safety - Six SDGs where Drax can have greatest impact - TRIR 0.32 (H1-19: 0.30) – implemented campaign to improve risk assessment, awareness and correct use o
Slide 9: Progress Towards a Carbon Negative Future
Progress Towards a Carbon Negative Future >85% reduction in Scope 1 & 2 CO2e End of commercial coal generation in Pioneering options for emissions since 2012 March 2021 negative emissions by 2030 Drax Group historic CO2e & negative emissions potential (Mt) European utility CO2 intensity (tCO2/GWh) 2
Slide 10: Generation
Generation Adjusted EBITDA System support(1) % of UK UK’s largest single source of renewable power and renewables fourth largest generator £214m £66m 11%(2) (H1-19: £148m) (H1-19: £61m) (Q4 2018 to Q1 2019: 11%) Multi-technology UK-wide portfolio - Sustainable biomass, hydro and gas Strong operation
Slide 11: Trading and Optimisation
Trading and Optimisation Forward power sales protect from weaker merchant prices, while retaining flexibility to provide system support services Strong contracted power sales for Generation 2020-2022 Contracted Generation power position - 34TWh contracted at £51.4/MWh Contracted Power at 22 July 202
Slide 12: Pellet Production
Pellet Production Increased production, improved quality, reduced costs Strong operational performance Adjusted EBITDA Pellet production Production cost - 15% increase in production £25m 0.75Mt $154/t(1) - Improved pellet quality (H1-19: £8m) (H1-19: 0.65Mt) (H1-19: $170/t) - 9% reduction in cost Pr
Slide 13: Financial Review
Financial Review 29 July 2020 13
Slide 14: Financial Summary
Financial Summary Strong financial performance Interim Dividend Cash Generated from Adjusted Basic Earnings 6.8p/share (£27m) Operations Per Share(1) Adjusted (H1-19: 6.4p/share, £25m) £226m 10.8p/share(2) EBITDA(1) (H1-19: £229m) (H1-19: 2.0p/share) £179m Expected Full Year Dividend Net Debt Coal O
Slide 15: Group Adjusted EBITDA Bridge H1-19 – H1-20
Group Adjusted EBITDA Bridge H1-19 – H1-20 £m 19 48 6 200 7 4 46 17 100 179 138 Hydro - pumped storage 0 & run of river H1 2019 Pellet Drax Power Pumped Run of Gas Customers Central H1 2020 Group Production Station Storage River Generation Costs and Group (1) Adjusted EBITDA Other Adjusted EBITDA Pe
Slide 16: Financial Impact of Covid-19
Financial Impact of Covid-19 No change to estimated full year impact of Covid-19 on Adjusted EBITDA in 2020, mostly reflected in H1 2020 H1-20 FY-20 Impact Pellet Production Nil Nil - Supply chain continuing to perform well - Strong contracted position protects from lower power demand and prices - L
Slide 17: Development of Biomass Self-supply to Expand Capacity and Reduce Cost
Development of Biomass Self-supply to Expand Capacity and Reduce Cost Plans for existing capacity to reduce costs by $64m ($35/t, £13/MWh(1)) by 2022 on 1.85Mt vs. 2018 base Savings versus 2018 base year 2019 2020 2021 2022 Savings from projects delivered Annual savings from projects delivered to da
Slide 18: Capital Investment
Capital Investment Investment to drive operational efficiency, strategic initiatives and growth 2020 current estimates Key projects Investment Maintenance Maintain operational performance £60-70m Acquired assets Hydro and gas £30m Enhancement Efficiency and operational improvements £10m Strategic Bi
Slide 19: Balance Sheet
Balance Sheet Long-term structures in place to support growth Net debt / Adjusted EBITDA Instrument Maturity Description - Remain on track for c.2x at end of 2020 Infrastructure private 2024-2029 £375m £694m cash and total committed facilities placement (2019) Maturity profile to 2029 2025 $500m Bon
Slide 20: Clear Capital Allocation Policy
Clear Capital Allocation Policy Implemented in 2017, designed to support strategy Maintain credit Invest in core Sustainable and Return surplus rating business growing dividend capital beyond investment requirement Commitment to robust £190-210m in 2020 2020 expected full year dividend Investment in
Slide 21: Biomass Strategy Update
Biomass Strategy Update 29 July 2020 21
Slide 22: Biomass Strategy
Biomass Strategy Ensure the long-term future of biomass power generation through world leading safety and sustainability, ongoing cost reduction and the delivery of negative emissions Ambition: to create a large, low-cost sustainable biomass supply chain Reduce biomass self-supply cost to Increase s
Slide 23: Biomass Opportunities Post-2027
Biomass Opportunities Post-2027 All opportunities underpinned by development of large, low-cost sustainable biomass supply chain - Low-cost biomass generation including 5Mt from self-supplied biomass - Flexible operation targeted on periods of higher demand Generation model - System support services
Slide 24: Global Wood Pellet Market Outlook
Global Wood Pellet Market Outlook Growing global demand Market development >60% increase in global demand (Mt) in next decade(1) - Growing Asian demand, long-term contracts post 2027 and premium to European pricing - Growth in European (non-UK) demand 20 16 Drax position in global market - 4th large
Slide 25: Why BioEnergy Carbon Capture and Storage (BECCS)?
Why BioEnergy Carbon Capture and Storage (BECCS)? A key part of the path to net zero BECCS required to achieve UK net zero carbon emissions by 2050 (UK Committee on Climate Change) - UK is committed by law to net zero by 2050 - ~90Mt of negative emissions p.a. required to offset residual UK emission
Slide 26: BECCS Technologies
BECCS Technologies Continued development of technology options Technology test zone at Drax Power Station BECCS process illustration Developing proven and innovative technology options – Mitsubishi Heavy Industries - Proven post-combustion solvent treatment - Operating at over 13 sites globally incl
Slide 27: Investment Framework for BECCS Will Continue to Develop Throughout 2020
Investment Framework for BECCS Will Continue to Develop Throughout 2020 Emerging clarity on milestones for regulatory support - Spring Statement: at least £800m committed by UK Government to CCS infrastructure ✓ Q1 - Launch of BEIS Expert Groups on CCS business models (power, industry and CO2 transp
Slide 28: 2020 Outlook and Priorities
2020 Outlook and Priorities We will build a long-term future We will be the leading provider of We will give our customers for sustainable biomass power system stability control of their energy - Biomass cost reduction and expanded - Flexible generation and I&C portfolio - Monitoring and optimisatio
Slide 29: Half Year Results
2020 Half Year Results 29 July 2020
Slide 30: Appendices
Appendices H1 2020 Group Adjusted EBITDA End of Coal Generation at Drax Power Station Group Income Statement Sustainable Biomass Sourcing and Carbon Life Cycle Consolidated Adjusted EBITDA Sources of Biomass Supply Generation – Adjusted EBITDA Biomass Cost Reduction Pellet Production – Adjusted EBIT
Slide 31: H1 2020 Group Adjusted EBITDA
H1 2020 Group Adjusted EBITDA High quality, enduring earnings from a multi-technology portfolio and integrated value chain Installed Business unit Assets EBITDA (£m) % of EBITDA capacity Three pellet plants in US Gulf 1.5Mt Pellet Production Export facility – Port of Baton Rouge 2.4Mt 25 14% Biomass
Slide 32: Group Income Statement
Group Income Statement H1-20 H1-19 In £m Adjusted Exceptional Total Adjusted Exceptional Total Revenue 2,205 14 2,219 2,227 5 2,232 Cost of sales (1,804) 94 (1,709) (1,863) (4) (1,867) Gross profit 401 108 510 364 1 365 Adjusted EBITDA 179 - - 138 - - Depreciation (77) - (77) (83) - (83) Amortisatio
Slide 33: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA Power Pellet Customers Adjustments Consolidated H1-20 £m Generation Production Segment Adjusted EBITDA 214 25 (37) - 202 Central Costs & Other(1) (23) Consolidated Adjusted EBITDA 179 Power Pellet Customers Adjustments Consolidated H1-19 £m Generation Production Segment
Slide 34: Generation – Adjusted EBITDA
Generation – Adjusted EBITDA In £m H1-20 H1-19 Revenue Power sales 1,107 1,141 System support and optimisation System support and optimisation 85 64 ROC sales 328 310 £m H1-20 H1-19 CfD income 157 117 System support and optimisation Capacity Market income 34 - Balancing mechanism 85 64 Gas sales to
Slide 35: Pellet Production – Adjusted EBITDA
Pellet Production – Adjusted EBITDA Drax US production cost In £m H1-20 H1-19 H1-20 H1-19 Revenues 118 97 Cost of sales ($m) 82 83 Cost of sales (65) (64) Operating costs ($m) 36 33 Gross profit 53 33 Total cost ($m) 118 116 Operating costs (28) (25) Other adjustments ($m) (2) (5) Adjusted EBITDA 25
Slide 36: Customers – Adjusted EBITDA
Customers – Adjusted EBITDA Estimated impact of Covid-19 In £m H1-20 H1-19 £m H1-20 Revenue 1,032 1,128 Reduction in demand and increased third party costs 14 MtM cost to exit previously hedged power contracts 15 Cost of sales Increased expectation of business failure 15 Cost of power and gas purcha
Slide 37: Group Cash Flow Statement
Group Cash Flow Statement In £m H1-20 H1-19 Adjusted EBITDA 179 138 Working capital 47 91 Cash generated from operations 226 229 Debt service (27) (23) Tax(1) (31) (7) Net cash from operating activities 168 199 Capital investment (59) (68) Capital investment – acquisition - (692) Net refinancing - 5
Slide 38: Group Net Debt Bridge
Group Net Debt Bridge On track for 2 x net debt to Adjusted EBITDA by end of 2020 £m 38 31 800 27 25 59 841 792 179 600 400 200 0 31 Dec 2019 Adjusted Capital Debt Tax Dividend Working capital 30 June 2020 Net debt EBITDA expenditure service & other(1) Net debt (incl. reinstated Capacity Market) 29
Slide 39: Capacity Market Agreements
Capacity Market Agreements Clear revenue profile to 2024 with option to develop new gas generation subject to future Capacity Market agreements £m(1) 2020 2021 2022 2023 2024(2) Total Hydro 10 10 4 5 7 36 Gas 37 37 16 16 30 136 Coal 24 25 9 - - 58 Total 71 72 29 21 37 230 Oct-19 to Oct-20 to Oct-21
Slide 40: End of Coal Generation at Drax Power Station
End of Coal Generation at Drax Power Station Progress to becoming a carbon negative company Decision aligned with UK‘s 2050 net zero objective Time scale - End of commercial coal generation March 2021 - Completion of Capacity Market agreements September 2022 Financial impact - Asset obsolescence cha
Slide 41: 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 42: Sources of Biomass Supply
Sources of Biomass Supply Drax Group sources of fibre by location – H1 2020 Drax Group sources of fibre by location – H1 2019 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 bar
Slide 43: Biomass Cost Reduction
Biomass Cost Reduction Increased control of supply chain to reduce overall cost of biomass generation to c.£50/MWh(1) Portfolio £/MWh Initiatives 75 2019 Opportunities from existing self-supply business - Established programme of improvements and expansion to deliver $64m pa savings by 2022 ($35/t /
Slide 44: US Satellite Plants
US Satellite Plants Development of up to 0.5Mt of new capacity Investment in three new satellite pellet plants in US Gulf Containerised pellet plant - Low-cost containerised plants solution - 40Kt plants, investment of $40m for three plants - Sited close to existing sawmills for access to lower cost
Slide 45: System Support Services
System Support Services Decarbonisation leading to reduction in system support capable assets Change in UK generation mix (GW)(1) Generation type 2012 2018 Pumped Inter- Generation type Biomass Gas Hydro Nuclear Wind Batteries Storage connector Biomass and other 3.2 7.4 renewables Frequency Yes Yes
Slide 46: Positions Under Contract
Positions Under Contract Contracted Generation power position - Largely sold forward on ROC units 18-24 months Contracted Power at 22 July 2020 2020 2021 2022 - Portfolio optimisation to maximise margins Power - CfD unit neutral to power price, provides Fixed price power sales (TWh) 17.6 11.4 4.8 un
Slide 47: Merchant Forward Power Prices
Merchant Forward Power Prices Seasonal Power Price (£/MWh) Peak Power Price (£/MWh) 80 80 70 70 60 60 50 50 40 40 30 30 Jul-18 Oct-18 Jan-19 Apr-19 Aug-19 Nov-19 Feb-20 Jun-20 Jul-18 Oct-18 Jan-19 Apr-19 Aug-19 Nov-19 Feb-20 Jun-20 Summer20 Winter20 Summer21 Winter21 Summer22 Summer20 Winter20 Summe
Slide 48: Merchant Forward Commodity Prices
Merchant Forward Commodity Prices EU ETS Carbon (€/t) Power Price (£/MWh) 40 70 60 30 50 20 40 30 10 20 0 10 Jul-18 Oct-18 Feb-19 Jun-19 Oct-19 Feb-20 Jun-20 Jul-18 Oct-18 Feb-19 Jun-19 Oct-19 Feb-20 Jun-20 Dec20 Dec21 Dec22 Summer20 Winter20 Summer21 Winter21 Summer22 Source: ICE Source: ICE API2 C
Slide 49: Merchant Forward Spreads
Merchant Forward Spreads Peak CSS (£/MWh) Peak DGS (£/MWh) Peak ROC Bark Spread (£/MWh) 20 60 10 50 - 40 10 30 (10) 20 10 - (20) Jul-18 Oct-18 Feb-19 Jun-19 Oct-19 Feb-20 Jun-20 Jul-18 Oct-18 Feb-19 Jun-19 Oct-19 Feb-20 Jun-20 - Jul-18 Oct-18 Feb-19 Jun-19 Oct-19 Feb-20 Jun-20 Summer20 Winter20 Summ
Slide 50: Forward Looking Statements
Forward Looking Statements This announcement 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 financial position, strategy, projected cos
Slide 51: Half Year Results
2020 Half Year Results 29 July 2020