Slide 1: Preliminary Results
Preliminary Results 12 Months Ended 31 December 2013 18 February 2014
Slide 2: Agenda
Agenda 2013 Business Review Biomass and Regulation Dorothy Thompson Chief Executive 2013 Financial Review Tony Quinlan Finance Director Conclusion Dorothy Thompson Drax Group plc 2
Slide 3: Overview
Overview Dorothy Thompson – Chief Executive 2013 performance EBITDA Underlying profits ahead of expectations Increasing cost of carbon £230m Good operations Underlying Earnings Per Share 2014 outlook Markets weaker with mild winter Modify unit to enhanced co-firing 35.3p Biomass transformation Total
Slide 4: Business Review – Operational Performance
Business Review – Operational Performance Safety Safety Performance 0.6 Maintaining good safety performance 2010 Global Coal Power Plant First Quartile TRIR – Solomons LLC 0.5 • > 50% increase in hours worked to 5.9m hours 0.4 0.3 Coal operations 0.2 84% availability (2012: 86%) 0.1 • 6.8% forced ou
Slide 5: Business Review – Biomass Operations
Business Review – Biomass Operations First converted unit performing very well First Converted Unit Output Unit initially fuelled using existing co-firing plant 700 • Temporary fuel delivery systems 600 Progressive commissioning of new on-site 500 facilities from October MW 400 • Fully operational f
Slide 6: Business Review – Haven Power
Business Review – Haven Power Credit-efficient route to market Haven Power Sales 10 On track for 12 - 15TWh by 2015 • Sales growth and credit quality 8 (2) Volume at NBP (TWh) remain business priority - I&C and SME markets(1) 6 Substantial sales growth 2013 4 8.9 • Retail sales £751m (2012: £451m) 5
Slide 7: Business Review – Markets and Trading
Business Review – Markets and Trading Near-term market developments Power and ROC Prices 60 Mild winter across Europe • Weak gas market, high gas storage 56 • Weak power markets 52 £/MWh Abnormally high wind generation • Weaker ROC prices 48 Trading strategy 44 Coal hedging 40 • Sales near / medium-
Slide 8: Contracts for Difference (CfD)
Contracts for Difference (CfD) CfD structure CfD Mechanism Illustration • Designed to deliver price certainty 160 • Private law contract • Newly established company for counterparty - Payments under CfD funded through a levy Power Price on electricity suppliers £105/MWh(1) Early CfDs - Investment Co
Slide 9: Biomass – Schedule for Increasing Generation
Biomass – Schedule for Increasing Generation 2013 2014 2015 2016 1st Unit ECF(1) Unit ECF Unit 3rd Unit Potential 4th Unit Conversion Commission Conversion Conversion Conversion RO – 1 ROC RO – 0.9 ROC CfD – £105(2) CfD – £105(2) CfD – £? 2014 – focus on optimising biomass unit performance • Improve
Slide 10: Biomass – Unit Optimisation
Biomass – Unit Optimisation Good progress with optimisation Dome Storage – January 2014 Identified significant biomass unit improvements • Benefit of further testing on 1st unit conversion • Invest £90m over 3 years (3 units) – Attractive returns • Efficiency c.0.5% lower than coal • Delivers 630MW
Slide 11: Biomass – Fuel Supply
Biomass – Fuel Supply Dust Extraction System – January 2014 Near-term volumes Good progress • > 4Mt for 2014/15 ROC year Long-term volumes Negotiations progressing for 2nd and 3rd unit conversions • Underpinned by Early CfDs • Expect high proportion from North America • Potential for some increase i
Slide 12: Biomass – US Pellet Operations
Biomass – US Pellet Operations Projects in execution – on schedule Projects under evaluation and budget Developing options for up to 2Mt pa 2 pellet plants – combined capacity 900kt pa additional own pellet production • Amite (Mississippi) and Morehouse (Louisiana) • Attractive returns and good qual
Slide 13: Biomass – Logistics
Biomass – Logistics Freight Timeline for 2014 First long-term freight contracts concluded Facilities Fully 2014 Operational • Own pellet production plus some 3rd party volumes • Up to 20% of total freight exposure based on 3 unit fuel requirement 2 Domes Q1 Total storage c.150kt • Fixed price freigh
Slide 14: Biomass Sustainability
Biomass Sustainability All Drax biomass procured against robust industry-leading sustainability policy Fully compliant in 2013 • All biomass carbon foot printed – Average GHG(1) emissions significantly below maximum UK limit (mandatory from 2015) • Supplier audits – no material adverse findings DECC
Slide 15: IED and CCS
IED and CCS Industrial Emissions Directive (IED) Carbon Capture and Storage (CCS) Lead case investment: £75m - £100m New 426MW (gross) oxy-fired demonstration (over 4 years) plant • Low NOx burners – all units • Drax, Alstom, BOC and National Grid • Selective Non-catalytic Reduction (SNCR) • Net cap
Slide 16: Regulation – Electricity Market Reform
Regulation – Electricity Market Reform Fuel Distribution System – January 2014 Enduring CfDs • Award process under design • DECC targeting Q4 2014 for first applications • Affordability management necessary Capacity mechanism • Market design not yet finalised • DECC targeting Q4 2014 for first aucti
Slide 17: 2013 Financial Review
2013 Financial Review Tony Quinlan – Finance Director EBITDA Net Cash(2) £230m £71m Total Dividends Underlying Earnings Per Share(1) 35.3p 17.6p (£71m) Final Dividend 8.9p (£36m) 2014 outlook – markets weaker, mild 2013 profits – good operational winter performance for biomass and coal Biomass
Slide 18: Income Statement – Summary
Income Statement – Summary In £m (unless otherwise stated) 2013 2012 % Year-on-Year Revenue 2,062 1,780 Cost of Sales (1,617) (1,269) Gross Margin 445 511 Operating Costs (215) (213) EBITDA 230 298 -23% IAS39 Unrealised Losses on Derivative Contracts (110) (36) Depreciation (65) (59) Operating Profi
Slide 19: Income Statement – Revenue
Income Statement – Revenue In £m (unless otherwise stated) 2013 2012 Power Prices 80 Total Revenue 2,062 1,780 70 Wholesale Power Sales 1,234 1,252 60 £/MWh Sum 12 Win 12 Retail Power Sales 751 451 50 Sum 13 Win 13 ROC and LEC Sales(1) 29 37 40 Sum 14 Win 14 30 Fuel Sales Revenue 28 17 Jan-11 Jul-11
Slide 20: Income Statement – Cost of Sales
Income Statement – Cost of Sales Coal Prices (API 2) In £m (unless otherwise stated) 2013 2012 160 Total Cost of Sales 1,617 1,269 140 120 $/tonne Fuel Costs(1) 698 789 Cal 12 Carbon Tax 62 - 100 Cal 13 Cal 14 Cost of Carbon Allowances 124 83 80 Cal 15 Cost of ROCs and LECs Sold 62 57 60 Jan-11 Jul-
Slide 21: Operating Costs
Operating Costs Operating costs – £215m in 2013 2014 Operating Cost Guidance 2013 total operating cost increase £2m, 240 in line with guidance 230 • Double outage year • Investment in growth plus underlying cost 220 inflation +£7m (4%) £m • End of CESP(1) -£5m 210 2014 operating cost guidance: £220m
Slide 22: Capital Expenditure
Capital Expenditure Transformation capex Transformation Capex on schedule and budget 3 Unit Conversions, IED, US Pellet Investments £m Transformation capex Incurred to End of 2012 185 • 3 unit conversions, IED, US pellet investments 2013 230 • Guidance unchanged at £650m - £700m Estimate to Complete
Slide 23: Cash Flow
Cash Flow 2013 Cash Flow 650 550 £m 450 350 250 Opening EBITDA Working ROCs Tax Capex GIB / IUK Debt Dividends Closing Cash Capital / Term Loans Service Cash Other Working Capital / Other ROCs / LECs Tax Capex Dividends Closing Cash £64m (£121m) (£11m) (£302m) (£79m) £287m Biomass stocks inflow £7m
Slide 24: Financing and Working Capital
Financing and Working Capital Debt facilities Debt Term loans M&G £100m • £100m M&G term loan (6-8 year maturity) UK GIB £50m • £50m UK Green Investment Bank term loan (6-8 year maturity) Friends Life £75m • £75m Friends Life term loan (4-5 year maturity) - Underpinned by guarantee from Infrastructu
Slide 25: Looking Ahead – Biomass Investment Opportunities
Looking Ahead – Biomass Investment Opportunities Biomass unit optimisation • Higher unit output, efficiency – delivers strong returns Fourth unit conversion • Potential for significant value creation • Timing driven by regulatory support levels, biomass availability and supply chain development Pell
Slide 26: Looking Ahead – Capital Structure and Distributions
Looking Ahead – Capital Structure and Distributions Capital structure Covered Conveyors – January 2014 • Maintain efficient balance sheet discipline • Credit rating, commodity trading capability • Retain capacity for investment in value enhancing opportunities Distributions • Potential for substanti
Slide 27: Financial Review – Key Takeaways
Financial Review – Key Takeaways Changes to key assumptions Previous Assumption Current Assumption Output 600MW Output 630MW from 2014 Biomass Unit Technical Efficiency 1.3% lower than coal Efficiency 0.5% lower than coal from 2014 Performance Availability – 80% and rising Availability 80% in 2014/1
Slide 28: Summary
Summary 2013 performance Dome Storage – January 2014 • Good operations and healthy spreads • Good progress commissioning new biomass facilities • Increasing cost of carbon 2014 outlook • Markets weaker with mild winter • Modify a coal unit to enhanced co-firing Biomass transformation • Capex on sche
Slide 29: Drax Transformed – the Group in 2016
Drax Transformed – the Group in 2016 Power generation: reliable and flexible Biomass generation • 3 units fuelled by biomass : 1 RO / 2 Early CfD • Capacity at least 630MW, efficiency 0.5% lower than coal • 4th unit conversion plans well advanced Coal generation • 3 units - plant compliant with IED
Slide 30: Questions
Questions
Slide 31: Appendices
Appendices 1. Definitions Dome Storage – January 2014 2. Tax Reconciliation 3. Fuel and ROC Reporting 4. Financial Calendar 5. IAS 39 Treatment 6. Power Market 7. Gas Market 8. Coal Market 9. Carbon Market 10. Forward Spread Movements 11. Commodity Price Movements 12. LCPD and IED 13. Carbon Price F
Slide 32: Appendix 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 33: Appendix 1: Definitions (cont.)
Appendix 1: Definitions (cont.) 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
Slide 34: Appendix 2: Tax Reconciliation
Appendix 2: Tax Reconciliation Low tax rate driven by impact of Tax Reconciliation reduction in corporation tax (CT) rate In £m (unless otherwise stated) 2013 2012 CT rates • 23.25% for 2013 and 24.5% for 2012 Profit Before Tax 32 190 Adjustments to prior year taxes Tax at CT Rate 7 47 now agreed wi
Slide 35: Appendix 3: Fuel and ROC Reporting
Appendix 3: Fuel and ROC Reporting Income statement and balance sheet 2013 Income Statement – Fuel Costs include value of ROCs / LECs generated Net Fuel Cost Comprises: £m £/MWh Income statement – cost of fuel • 2013 £732m (£27.9/MWh), comprising: Coal, Carbon Tax and Biomass 876 33.4 - Cost of coal
Slide 36: Appendix 4: Financial Calendar
Appendix 4: Financial Calendar Event 2014 Annual General Meeting 23 April Ordinary shares marked ex-dividend 23 April Record date for final dividend 25 April Final dividend payment date 16 May Interim Management Statement Mid May Financial half year end 30 June Announcement of Half Year Results 29 J
Slide 37: Appendix 5: IAS Treatment
Appendix 5: IAS 39 Treatment Financial Instrument Location of Gains and Losses in the 2013 Annual Report Power Hedge Reserve International Coal Hedge Reserve and Income Statement Financial Coal Largely Income Statement Foreign Exchange Hedge Reserve and Income Statement Carbon Hedge Reserve Drax Gro
Slide 38: Appendix 6: Power Market
Appendix 6: Power Market UK power market Range of Market DGS and GSS(1) by Efficiency (Baseload) Power prices continue to be driven 30 by gas market Efficiencies 20 DGS GSS Dispatch dynamics 10 40% 55% £/MWh Plant efficiencies significant factor 0 in load profiles 36% 49% • Different load factors fo
Slide 39: Appendix 7: Gas Market
Appendix 7: Gas Market UK Gas Storage Year on Year Cold winter 2012/13 across Europe 5000 • Gas storage heavily depleted 4500 • Rough storage (UK) record low in April-13 4000 High UK gas storage due to the current mild winter to date 3500 – Injected at record highs and 3000 boosted summer 2013 deman
Slide 40: Appendix 8: Coal Market
Appendix 8: Coal Market Chinese Seaborne Freight Global steam coal market remains 50 oversupplied 40 Million Metric Tonnes Strong export growth from exporters 30 • Australia +9.5% (YoY to Nov-13) • Russia +7.5% (YoY to Oct-13) 20 • Indonesia +16.5% (YoY to Sept-13) 10 Chinese steam coal seaborne imp
Slide 41: Appendix 9: Carbon Market
Appendix 9: Carbon Market Phase III EUA ETS – new lows in 2013 Carbon Prices 25 Driven by Phase II over-supply and weak European economies 20 • Phase II surplus bankable into Dec-11 15 €/tonne Phase III (2013 to 2020) Dec-12 Dec-13 10 Back-loading now approved Dec-14 • Slight uncertainty remains ove
Slide 42: Appendix 10: Forward Spread Movements
Appendix 10: Forward Spread Movements Dark Green Spread Green Spark Spread 30 8 7 25 6 20 5 4 15 £/MWh £/MWh 3 10 2 5 1 0 0 -1 -5 -2 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 10 0 -10 Summer 12 Winter 12 Summer 13 Winter 13 Jan-11 Jul-11 Jan-12
Slide 43: Appendix 11: Commodity Price Movements
Appendix 11: Commodity Price Movements Power Prices Coal Prices (API 2) 75 150 70 140 65 130 60 120 Sum 12 $/tonne £/MWh 55 110 Cal 12 Win 12 100 Cal 13 50 Sum 13 Cal 14 45 Win 13 90 Cal 15 40 Sum 14 80 Win 14 35 70 30 60 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jan-11 Jul-11 Jan-12 Jul-12 J
Slide 44: Appendix 12: LCPD and IED
Appendix 12: LCPD and IED Installed Capacity Opted Out Hours Capacity Opted In Capacity Opted Remaining IED – Stations with Installation Operator Fuel (MWe) (MW) Out (MW) (Elexon – Jan 2014) Opted Out Units Drax Drax Power Coal 3870 3870 0 Eggborough EPL Coal 1960 1960 0 Cottam EDF Energy Coal 200
Slide 45: Appendix 13: Carbon Price Floor
Appendix 13: Carbon Price Floor . Introduced in Budget 2011 HMT Projected Carbon Price Floor to 2020 – effective April 2013 50 45 Climate Change Levy (CCL) amended to 40 indirectly supplement EU ETS carbon price 35 • Based on fuel (coal) consumption 30 £/tonne CO2 Tax per tonne CO2 set annually 25 –
Slide 46: Appendix 14: ROC Banding and CfD Strike Prices
Appendix 14: ROC Banding and CfD Strike Prices CfD Support(2) Technologies ROC Support 2014/15 2015/16 2016/17 2017/18 2018/19 Offshore wind 2.0 – 1.8 £155 £155 £150 £140 £140 Onshore wind 0.9 £95 £95 £95 £90 £90 Conversion(1) 1.0 £105 £105 £105 £105 £105 Enhanced 0.7 (2013 – 2014) co-firing (85% -
Slide 47: Appendix 15: Drax Site Development Schematic
Appendix 15: Drax Site Development Schematic Rail Unloading and Storage Fuel Distribution Combustion Boiler Flame Monitor Combustion Air Balance Burners Furnace Camera Mill Drax Group plc 47
Slide 48: Preliminary Results
Preliminary Results 12 Months Ended 31 December 2013 18 February 2014