Slide 1: 2019 Full Year Results
2019 Full Year Results 27 February 2020
Slide 2: Agenda
Agenda Operational Review Presenters Will Gardiner, CEO Financial Review Andy Skelton, CFO Biomass Strategy Update 27 February 2020 2
Slide 3: Our Purpose
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 27 Febr
Slide 4: Operational Review
Operational Review 27 February 2020 4
Slide 5: 2019 Performance Highlights
2019 Performance Highlights Strong financial and operational performance, progression of strategy Financial - 64% increase in Adjusted EBITDA to £410m - £114m Adjusted EBITDA from acquired hydro and gas generation assets - £413m net cash from operating activities - 1.9x(1) net debt / Adjusted EBITDA
Slide 6: End of Coal Generation at Drax Power Station
End of Coal Generation at Drax Power Station A key milestone in the path to becoming a carbon negative company Decision aligned with UK‘s 2050 net zero objective End of commercial coal generation in March 2021 - Remain available to fullfil Capacity Market obligation until September 2022 Consultation
Slide 7: Progress Towards a Carbon Negative Future
Progress Towards a Carbon Negative Future >85% reduction in Drax Group Scope 1 & 2 CO2e emissions since 2012 Drax Group CO2e emissions (kt)(1) European utility CO2 intensity (tCO2/GWh) Enel 25,000 1,000 Engie 900 Iberdrola 20,000 800 Orsted 700 Drax 15,000 600 Eon 500 10,000 400 300 5,000 200 100 0
Slide 8: 100% Sustainably Sourced Biomass
100% Sustainably Sourced Biomass Science-led biomass sourcing policy Objectives Biomass generation carbon life cycle - Reduce CO2 emissions - Protect the natural environment - Support people and societies - Research, outreach and intervention Policy - Reflects evolving science, Committee on Climate
Slide 9: Safety, Sustainability and ESG
Safety, Sustainability and ESG Achieving a positive long-term economic, social and environment impact Safety UN Sustainable Development Goals (SDGs) - TRIR 0.22 (2018: 0.22) - Six SDGs where Drax can have greatest impact Environment - >85% reduction in CO2 since 2012 - Expanded biomass sustainabilit
Slide 10: Generation Adjusted EBITDA
Generation Adjusted EBITDA Value from % of UK UK’s largest single source of renewable power flexibility(1) Renewables and fourth largest generator £408m £129m 12%(2) (2018: £232m) (2018: £79m) (Q4 2017 to Q3 2018: 12%) Multi-technology UK-wide portfolio - Sustainable biomass, hydro and gas generatio
Slide 11: Power System Stability
Power System Stability Growing value from system support services Growing demand for services - Increase in wind, reduction in synchronous generation Value from flexibility(1) – Drax (£m) Growing BSUoS(2) charge (£/MWh) Drax portfolio provides full range of services - Frequency response, reactive po
Slide 12: Pellet Production
Pellet Production Increasing production, reducing costs Operational performance weighted to H2 Adjusted EBITDA Pellet production Production cost - Weather restricted pellet production in H1 £32m 1.41Mt $161/t(1) (2018: £21m) (2018: 1.35Mt) (2018: $166/t) - Increased output in H2 Reduction in pellet
Slide 13: Customers
Customers Growth in margin per MWh and customer meters Adjusted EBITDA Gross profit Focus on quality of business £17m £134m (2018: £28m) (2018: £143m) - Adjusted EBITDA includes £8m of restructuring costs - Increased margin/MWh through focus on value over volume - 6% growth in customer meters - Impr
Slide 14: Financial Review
Financial Review 27 February 2020 14
Slide 15: Financial Summary
Financial Summary Strong financial performance Adjusted Adjusted EBITDA(1) from hydro Net Debt Net Debt to EBITDA(1) and gas generation assets December 2019(2) Adjusted EBITDA(2) £410m £114m £841m 1.9x(3) (2018: £250m) (2018: N/A) (December 2018: £319m) (December 2018: 1.3x) Net Cash from Adjusted B
Slide 16: Group Adjusted EBITDA Bridge 2018 – 2019
Group Adjusted EBITDA Bridge 2018 – 2019 £m 42 72 400 11 16 62 300 11 200 410 250 100 0 2018 Pellet Drax Power Hydro Gas Customers Central 2019 Group EBITDA Production Station generation generation costs Group EBITDA incl. innovation Pellet Production Generation Customers Central costs 2019: £32m 20
Slide 17: 2019 Group Adjusted EBITDA Analysis
2019 Group Adjusted EBITDA Analysis High quality, enduring earnings from a multi-technology portfolio and integrated value chain Gross Reported % of Business Unit TWh EBITDA EBITDA Profit Opex Pellet Production 84 (52) 32 8% Drax Power Station Drax Power 13.4 (biomass) 481 (187)(1) 294 72% - Four bi
Slide 18: Net Debt Bridge
Net Debt Bridge Delivered 1.9x net debt / Adjusted EBITDA(1) £m 3.1x net debt / 1,200 Adjusted EBITDA(2) 1,011 2.1x net debt / 1.9x net debt / Adjusted EBITDA Adjusted EBITDA(1) 900 62 48 10 171 51 72 692 600 410 841 769 300 319 0 31 Dec 2018 Adjusted Capital Debt Tax Dividend Working capital 31 Dec
Slide 19: Capital Investment
Capital Investment Investment to support operational excellence, strategic initiatives and growth Actual Key Projects Investment Maintenance Maintain operational performance £59m Acquired assets Hydro and gas £15m 2019 Enhancement Efficiency and operational improvement £24m Strategic Biomass self-su
Slide 20: Development of Biomass Self-supply to Expand Capacity and Reduce Cost
Development of Biomass Self-supply to Expand Capacity and Reduce Cost Clear line of sight from existing projects to reduce costs by $35/t (£13/MWh)(1) by 2022 on 1.85Mt Savings from projects completed in 2019 Savings versus 2018 2019 2022 - LaSalle – rail spur, woodyard decommissioning Savings from
Slide 21: Balance Sheet
Balance Sheet Long-term structures in place to support growth Net debt / Adjusted EBITDA Instrument Maturity Description - 1.9x(1) in 2019 when adjusted for Capacity Market Infrastructure private 2024-2029 £375m Successful refinancing completed in 2019 placement - Extended maturity profile into 2029
Slide 22: Clear Capital Allocation Policy
Clear Capital Allocation Policy Implemented in 2017, designed to support strategy Invest in core Pay a sustainable Maintain credit business – capex and growing Return surplus rating dividend capital beyond £m £m investment 190 60 requirement BB+/BBB range 140 40 90 20 40 0 2017 2018 2019 2017 2018 2
Slide 23: Financial Summary and Outlook
Financial Summary and Outlook Strong financial performance in 2019 Pellet Production - Further progress reducing cost and expanding capacity of biomass self-supply Generation - Cost and savings associated with the closure of coal - Flexible, renewable and low-carbon generation with system support se
Slide 24: Biomass Strategy Update
Biomass Strategy Update 27 February 2020 24
Slide 25: Biomass Strategy Ambition
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 the world’s largest, low-cost sustainable biomass supply chain Increase self-supply Reduce bioma
Slide 26: Biomass Cost Reduction Route
Biomass Cost Reduction Route Increased control of supply chain to reduce overall cost of biomass generation to c.£50/MWh(1) Portfolio £/MWh Initiatives 80 2019 Opportunities from existing self-supply business 75 - Established programme of improvements and expansion to deliver £13/MWh(1) savings on 1
Slide 27: BioEnergy Carbon Capture and Storage (BECCS)
BioEnergy Carbon Capture and Storage (BECCS) Progression of technology options Developing technology options for BECCS BECCS process illustration – Proven amine technology solution to deliver BECCS at scale • Operating in industry for over 30 years • Two reference plants in North America capturing >
Slide 28: BECCS and the Humber Cluster
BECCS and the Humber Cluster Humber region is area of highest CO2 intensity in UK Humber pipeline What a zero carbon cluster could look like in the Humber region - Drax and other industries capture CO2 emissions - Transported in a pipe along Humber estuary - Long-term storage under North Sea bed Pot
Slide 29: Expected Regulatory Framework for BECCS Will Develop Throughout 2020
Expected Regulatory Framework for BECCS Will Develop Throughout 2020 Supports CCS recommendations for net zero economy - Energy white paper – to set out UK Government’s vision for CCS and negative emissions in 2020s/30s Q1 - Spring Budget – expect announcement on £800m Conservative manifesto commitm
Slide 30: 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 control for sustainable biomass power system stability of their energy - Biomass cost reduction and - Flexible generation and I&C - Operational excellence and cost increased cap
Slide 31: 2019 Full Year Results
2019 Full Year Results 27 February 2020 31
Slide 32: Appendices
Appendices Biomass Supply – Sources Capacity Market Agreements Group Income Statement Power Generation – Adjusted EBITDA Pellet Production – Adjusted EBITDA B2B Energy Supply – Adjusted EBITDA Consolidated Adjusted EBITDA Group Cash Flow Statement Group Balance Sheet Positions Under Contract Forward
Slide 33: Biomass Supply – Sources
Biomass Supply – Sources Drax Group sources of fibre by location – 2019 Drax Group sources of fibre by location – 2018 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 bark wood
Slide 34: Capacity Market Agreements
Capacity Market Agreements Clear revenue profile to 2023 with option to develop new gas generation subject to future Capacity Market agreement £m 2020 2021 2022 2023(1) Total Hydro 10 10 4 3 27 Gas 37 36 16 9 98 Coal 24 25 9 - 58 Total 71 71 29 12 183 Oct-19 to Oct-20 to Oct-21 to Oct-22 to Sept-20
Slide 35: Group Income Statement
Group Income Statement 2019 2018 In £m Adjusted Exceptional Total Adjusted Exceptional Total Revenue 4,703 10 4,713 4,237 (8) 4,229 Cost of sales (3,836) (143) (3,979) (3,636) 46 (3,590) Gross profit 867 (133) 734 601 38 639 Adjusted EBITDA 410 - - 250 - - Depreciation (166) - (166) (129) - (129) Am
Slide 36: Power Generation – Adjusted EBITDA
Power Generation – Adjusted EBITDA In £m 2019 2018 Revenue Power sales 2,356 1,897 ROC sales 1,102 981 CfD income 260 322 Capacity Market agreements 78 6 Ancillary services income 50 19 Fuel sales 42 52 Other income 59 55 3,947 3,332 Cost of sales Generation fuel costs (1,171) (1,122) Fuel sold (22)
Slide 37: Pellet Production – Adjusted EBITDA
Pellet Production – Adjusted EBITDA In £m 2019 2018 Revenues 229 214 Cost of sales (145) (149) Gross profit 84 65 Operating costs (52) (44) Adjusted EBITDA 32 21 27 February 2020 37
Slide 38: Customers – Adjusted EBITDA
Customers – Adjusted EBITDA In £m 2019 2018 Revenue 2,269 2,242 Cost of sales Cost of power and gas purchases (971) (952) Grid charges (468) (460) Other costs (690) (687) (2,135) (2,099) Gross profit 134 143 Operating costs (117) (115) Adjusted EBITDA 17 28 27 February 2020 38
Slide 39: Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA Power Pellet Customers Adjustments Consolidated 2019 £m Generation Production Segment Adjusted EBITDA 408 32 17 (1) 456 Central costs (46) Consolidated Adjusted EBITDA 410 Power Pellet Customers Adjustments Consolidated 2018 £m Generation Production Segment Adjusted EBIT
Slide 40: Group Cash Flow Statement
Group Cash Flow Statement In £m 2019 2018 Adjusted EBITDA 410 250 Working capital / other 61 86 Debt service (48) (24) Tax (10) (1) Net cash from operating activities 413 311 Capital investment (171) (132) Capital investment – acquisition (692) - Net refinancing 636 (13) Dividend (59) (53) Share buy
Slide 41: Group Balance Sheet
Group Balance Sheet In £m 2019 2018 Non-current assets 3,042 3,176 Current assets 1,729 1,418 Current liabilities (1,389) (1,730) Non-current liabilities (1,665) (1,037) Net assets 1,716 1,827 Shareholder’s equity 1,716 1,827 27 February 2020 41
Slide 42: Positions Under Contract
Positions Under Contract Contracted Power at 12 February 2020 2020 2021 2022 - Sold forward on ROC units 18-24 months - Buy back forward sold positions if prices fall Power sales (TWh) 16.0 8.4 3.3 Power - CfD unit neutral to power price, provides 15.8 8.7 3.3 underlying firm volume - Fixed price po
Slide 43: Forward Power Prices
Forward Power Prices Seasonal Power Price (£/MWh) Peak Power Price (£/MWh) 80 80 70 70 60 60 50 50 40 40 30 30 Jul-17 Oct-17 Jan-18 May-18 Aug-18 Nov-18 Mar-19 Jun-19 Sep-19 Dec-19 Jul-17 Oct-17 Jan-18 May-18 Aug-18 Nov-18 Mar-19 Jun-19 Sep-19 Dec-19 Sum-19 Win-19 Sum-20 Win-20 Sum-21 Sum-19 Win-19
Slide 44: Forward Commodity Prices
Forward Commodity Prices EU ETS Carbon (€/t) Power Price (£/MWh) 35 80 30 70 25 60 £/MWh 20 15 50 10 5 40 - 30 Jul-17 Dec-17 May-18 Oct-18 Mar-19 Aug-19 Jan-20 Jul-17 Oct-17 Jan-18 Apr-18 Aug-18 Nov-18 Feb-19 Jun-19 Sep-19 Dec-19 Dec-19 Dec-20 Dec-21 Dec-22 Win-19 Sum-20 Win-20 Sum-21 Win-21 API2 Co
Slide 45: Forward Spreads
Forward Spreads Peak CSS (£/MWh) Peak DGS (£/MWh) Peak ROC Bark Spread (£/MWh) 30 15 60 10 50 20 5 40 - 30 10 (5) 20 (10) 10 - (15) - Jul-17 Jan-18 Aug-18 Mar-19 Sep-19 Jul-17 Jan-18 Aug-18 Mar-19 Sep-19 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Sum-19 Win-19 Sum-20 Win-20 Sum-19 Win-19 Sum-20 Win-2
Slide 46: 2019 Full Year Results
2019 Full Year Results 27 February 2020 46