Slide 1: Preliminary Results Year Ended 31 December 2010
Preliminary 22 February 2011 Results Year Ended 31 December 2010 22 February 2011
Slide 2: Agenda
Agenda 2010 Business Review Market Review Dorothy Thompson Chief Executive 2010 Financial Review Tony Quinlan Finance Director Regulation Future Developments Dorothy Thompson Chief Executive 2 Drax Group plc Preliminary Results – Year Ended 31 December 2010
Slide 3: 2010 Business Review
2010 Business Review Dorothy Thompson - Chief Executive EBITDA Operational excellence delivered record plant performance £391m +10% Underlying PBT Improved 2010 profits underpinned by strong hedge; market outlook challenging £315m +10% Underlying EPS Continuing to progress biomass operations; highes
Slide 4: Operational Excellence: Safety and Performance
2010 Business Review Operational Excellence Safety Performance Record year for operations 0.6 2008 Global Coal Power Plant First Quartile TRIR – Solomons LLC 0.5 92% Availability (2009: 89%) 0.4 3.4% Forced Outage Rate (2009: 6.5%) 0.3 4.6% Planned Outage Rate (2009: 4.7%) 0.2 Net generation 26.
Slide 5: Operational Excellence: Fuel Mix and Cost Control
2010 Business Review Operational Excellence Fuel Mix Tight cost control 2010 2009 Underlying costs held flat Tonnes Mix(1) Tonnes Mix(1) Continuing process re-engineering Coal 9,430kt 88% 8,181kt 88% Significant project activity Biomass 907kt 6% 381kt 3% Turbine upgrade completed for 4 units P
Slide 6: Biomass Operations
2010 Business Review Biomass Operations Highest renewable output from single UK facility in 2010 World’s biggest co-firing facility 500MW renewable electricity capacity At full capacity saves > 2.5Mt CO2 pa Highest UK renewable output (7% (1) total UK) – despite operating at less than full capac
Slide 7: Haven Power Update
2010 Business Review Haven Power Update Valuable alternative to wholesale market Credit risk more controllable than collateral risk Targeting 10 - 15TWh business Across Small and Medium Enterprises (“SME”) and Industrial and Commercial (“I&C”) markets I&C market discovery ongoing Substantial gro
Slide 8: Trading
2010 Business Review Trading Positions Under Contract as at 14 February 2011 2011 2012 2013 Power Sales - TWh 18.1 10.3 3.0 Comprising: Fixed price TWh at average achieved price £ per MWh 11.3 @ 55.4 2.4 @ 58.2 0.4 @ 53.5 Fixed margin and structured contracts TWh 6.8 7.9 2.6 Carbon – TWh equival
Slide 9: Market Review: Power
Market Review: Power Range of Market DGS and GSS by Efficiency (Baseload) UK power market 15 Efficiencies Power prices continue to be driven DGS GSS by gas market 10 40% 58% Despatch dynamics 5 £ /M W h Plant efficiencies significant factor 0 in load profiles 36% 49% -5 Different load factors
Slide 10: Market Review: Gas
Market Review: Gas UK LNG Flows and UK Gas Demand UK gas prices resilient 500 Stronger, more balanced global gas market 140 450 UK Gas Demand mcm/d than 2009 120 400 LNG Flows mcm/d 350 Summer 2010 prices supported by: 100 300 Lower than expected LNG supply 80 250 High exports to the contine
Slide 11: Market Review: Steam Coal
Market Review: Steam Coal Global steam coal market Steam Coal Production and Consumption in China 2010 International traded market (0.7bnt) is 12% 2007 (estimate) 2007 2010 Net Steam Coal Flows / Mt of world consumption (c. 6bnt) 3,000 100 79 China the biggest influence 2,500 Steam Coal / Mt 2,0
Slide 12: Financial Review – Highlights
2010 Financial Review – Highlights Tony Quinlan - Finance Director EBITDA Net Cash (2) £391m +10% £204m Underlying Profit Before Tax (1) Total Dividends 32.0p/share (£117m) £315m +10% 2009: 13.7p/share (£50m) Underlying Earnings Per Share (1) Final Dividend 17.9p/share (£65m) 64p +10% 2009: 9.6p/sha
Slide 13: Summary Income Statement
2010 Financial Review Summary Income Statement % Year-on- In £m (unless otherwise stated) 2010 2009 Year Revenue 1,648 1,476 12% Cost of sales (1,097) (973) 13% Gross Margin 551 503 10% Operating Costs (160) (148) 8% EBITDA 391 355 10% IAS39 Unrealised Losses on Derivative Contracts (61) (130) Depre
Slide 14: Revenue
2010 Financial Review Revenue Day Ahead Power Prices In £m (unless otherwise stated) 2010 2009 140 120 Total Revenue 1,648 1,476 100 £/MWh Wholesale Power Sales 1,458 1,345 80 Retail Power Sales 124 65 60 Electrical Output (Net Sales) (TWh) 26.4 22.6 40 20 Average Achieved Price (£ per MWh) 51.6 52.
Slide 15: Cost of Sales and Fuel Costs
2010 Financial Review Cost of Sales and Fuel Costs Coal Prices (API 2) 2010 2009 230 210 190 Total Cost of Sales £1,097m £973m 170 $/tonne 150 130 Fuel and Carbon Costs £841m £691m 110 90 70 Cost of Power Purchases £165m £210m 50 Nov-08 Nov-09 Nov-10 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
Slide 16: Operating Costs and Capital Investment
2010 Financial Review Operating Costs and Capital Investment Operating Costs - £160m in 2010 Operating Costs 165 Underlying costs held flat year-on-year 160 Continued process re-engineering Total £12m increase due to: 155 £'m Investment in growth: Haven 150 CESP year 1 obligations 145 Op
Slide 17: Top Quartile Cost Performance
2010 Financial Review Top Quartile Cost Performance Forced Outage Rate and Availability Recent period characterised by careful 8 94 cash management 7 92 % Outage Rate Cost per generating unit improvement % Availability 6 90 from 3rd to 1st quartile 5 88 in 2009 independent benchmarking study 4 86
Slide 18: Cash Flow
2010 Financial Review Cash Flow 700 600 500 400 Working Capital and ROCS £'m 300 200 100 0 Opening EBITDA Coal Stock Other ROCs Tax Capex Debt Dividends Closing Cash Service Cash Notionally ring fenced tax cash Working Capital and ROCs Tax and Capex Debt Service Dividends Closing Cash £95m (£118m) (
Slide 19: Tax and Pensions
2010 Financial Review Tax and Pensions Eurobond debt structure unwound in December 2008 Unwind followed proposed introduction of new tax rules Decision taken to protect past benefits Unwind accelerated up to £220m additional cash tax benefit Subject to confirmation by HMRC Cash saved to date o
Slide 20: Debt Facilities
2010 Financial Review Debt Facilities Debt facilities at 31 December 2010: Current debt rating BBB- stable Term Loan balance £135m, Re-affirmed in August 2010 after repayments of £65m in 2010 Still targeting investment grade – but could £200m Letter of Credit facility; operate as sub investm
Slide 21: Financial Review Summary
2010 Financial Review Summary Improved 2010 profitability Underpinned by accelerated hedge and strong operations Commodity market outlook challenging Forward power sales of 18TWh for 2011 Drive on operations, advantaged fuels and cash management Markets recognise profitability will be lower
Slide 22: Regulation: Electricity Market Reform
Regulation Dorothy Thompson – Chief Executive Electricity Market Reform Consultations (“EMR”) – December 2010 What it does Our View Feed-in- Level playing field for new entrants and Contract for difference feed-in-tariff tariffs for independent generators low carbon Proposed as lead support fo
Slide 23: Renewables Obligation
Regulation Renewables Obligation Renewables Obligation consultation DECC position on biomass firing in coal plants evolving Sustainability standards introduced Mandatory from 2013 Recognition dedicated biomass should be grandfathered “We remain of the opinion Consideration being given to sup
Slide 24: Future Developments: Biomass Strategy
Future Developments Biomass Strategy Summer December H2 Q1 April 2010 2010 2011 2012 2013 Consultation Accelerated RO Consultation on Confirmation of Implementation on RO Banding Review new bands new bands of new bands Ahead of regulatory clarity – continue biomass R&D work Explore higher levels of
Slide 25: 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 window Timing of closures / plant retrofit a major determinant of future UK reserve margin Continuing R&D wor
Slide 26: Conclusion
Conclusion Stand ready to expand Operational excellence delivered biomass business record plant performance Improved 2010 profits underpinned by strong hedge; market outlook challenging Continuing to progress biomass operations; highest renewable output from single UK facility Low carbon Low cost Lo
Slide 27: Questions
Questions
Slide 28: Appendices
Appendices 1. Definitions 2. Financial Calendar 3. IAS39 Treatment 4. Commodity Prices 5. UK Generation Capacity 6. Gas Market 7. Coal Market 8. UK Weather Profile 9. ROC Banding 10. Plant Flexibility 11. Biomass Development 28 Drax Group plc Preliminary Results – Year Ended 31 December 2010
Slide 29: 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 30: Appendix 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 31: Appendix 2: Financial Calendar
Appendix 2: Financial Calendar Event 2011 Annual General Meeting 13 April Ordinary shares marked ex-dividend 27 April Record date for final dividend 3 May Interim Management Statement 12 May Final dividend payment date 13 May Announcement of Half Year Results 2 August Interim Management Statement 15
Slide 32: Appendix 3: IAS39 Treatment
Appendix 3: IAS39 Treatment Financial Location of gains and losses in the 2011 Consolidated Financial Statements Instrument Power Hedge Reserve International Coal Hedge Reserve and Income Statement Financial Coal Largely Income Statement Foreign Exchange Hedge Reserve and Income Statement Interest R
Slide 33: Appendix 4: Commodity Prices
Appendix 4: Commodity Prices UK Forward Spread Movements – to 16 February 2011 Dark Green Spread Green Spark Spread 35 35 30 30 25 25 20 20 £/MWh £/MWh 15 15 10 10 5 5 0 0 Nov-09 Nov-10 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Nov-09 Nov-10 Mar-09 May-09 Sep-09 Mar-10 May-10 Sep-10 Jan-09 Jul-09 Jan-10 Ju
Slide 34: Appendix 4: Commodity Prices
Appendix 4: Commodity Prices Commodity Price Movements – to 16 February Forward Power Price Forward Coal Price (API 2) 70 130 60 120 50 Sum 09 110 Win 09 100 Cal 10 $/tonne £/MWh 40 Sum 10 90 Cal 11 30 Win 10 80 Cal 12 20 Sum 11 70 Win 11 60 10 50 0 40 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Apr-09 Oct-0
Slide 35: Appendix 4: Commodity Prices
Appendix 4: Commodity Prices Carbon Price Movements – to 16 February Market price continues to be EUA movements since January 2010 predominantly driven by sentiment 20 19 around EU policy 18 No market reaction to UK carbon floor 17 16 € / tonne High expectation Phase II will be in 15 surplus 14 13
Slide 36: Appendix 5: UK Generation Capacity
Appendix 5: UK Generation Capacity Summary of LCPD Elections Installed Capacity Capacity Capacity Opted Out Hours Capacity Capacity Opted In Opted In ELV Opted Out Remaining (Elexon - Installation Operator Fuel (MWe) Opted In (MW) NERP (MW) (MW) (MW) 25th Jan 2011) Drax Drax Power Coal 3870 3870 387
Slide 37: Appendix 6: Gas Market
Appendix 6: Gas Market European to UK Gas Price Differentials Spot EBPTM Index v. UK Spot Gas (NBP) Differential 50 40 30 20 ppt 10 0 Jan-08 Mar-08 May-08 Jul-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Nov-10 Jan-11 Sep-08 Sep-09 Sep-10 -10 -20 Sources: European Benchma
Slide 38: Appendix 7: Coal Market
Appendix 7: Coal Market API2, API4, Implied Freight Calendar 2011 ($/t) 140 20 120 100 Implied Freight ($/Tonne) API2 and API4 ($/Tonne) 80 10 60 40 20 0 0 Nov-10 Jan-10 Jun-10 Jul-10 Jan-11 Feb-10 Mar-10 Apr-10 May-10 Aug-10 Sep-10 Oct-10 Dec-10 API2 Cal 12 API4 Cal 12 Implied Freight Source: Broke
Slide 39: Appendix 8: UK Weather Profile
Appendix 8: UK Weather Profile Composite Weather Variable 20 15 10 CWV 5 0 -5 Nov-10 Jan-10 Jun-10 Jul-10 Jan-11 Feb-10 Mar-10 Apr-10 May-10 Aug-10 Sep-10 Oct-10 Dec-10 Actual Warm Normal Cold Source: National Grid 39 Drax Group plc Preliminary Results – Year Ended 31 December 2010
Slide 40: Appendix 9: ROC Banding
Appendix 9: ROC Banding Band Support Technologies Level of ROCs / MWh Established I Landfill gas 0.25 Sewage gas; co-firing of non-energy crop (regular) biomass (subject to a 12.5% cap from 1 Apr 2010 on the number of co-fired Established II non-energy crop ROCs which can be presented by a supplier
Slide 41: Appendix 10: Plant Flexibility
Appendix 10: Plant Flexibility The market provides power to meet forecast demand - it Example - Snapshot Period 11 Sunday June 27th 2010 does not provide the required system reserve/flexibility NG was presented with a system that was 800MW long National Grid (NG) must maintain both positive and Es
Slide 42: Appendix 11: Biomass Development
Appendix 11: Biomass Development Installation and operation of Launched development of Completion of direct second direct injection facility dedicated biomass business injection co-firing (100MW capacity) with Siemens Project facility (500MW Ventures / Drax Joint capacity) R&D for direct injection o
Slide 43: 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 44: Preliminary Results
Preliminary Results Year Ended 31 December 2010 22 February 2011