Slide 1: Preliminary Results 12 Months Ended 31 December 2014
Preliminary Results 12 Months Ended 31 December 2014 24 February 2015
Slide 2: Group Structure
Group Structure Biomass Generation Retail Self-supply Markets and Trading Fuel Drax Group plc 2
Slide 3: Agenda
Agenda Business Review Dorothy Thompson Chief Executive 2014 Financial Review Tony Quinlan Finance Director Biomass Update Dorothy Thompson Drax Group plc 3
Slide 4: 2014 Overview
2014 Overview Dorothy Thompson – Chief Executive Drax Power EBITDA Good operations Significant regulatory headwinds £229m Major deterioration in commodity markets Underlying Earnings Per Share Haven Power Strong sales growth 23.7p Drax Biomass Total Dividends Commercial operations commence shortly 1
Slide 5: Safety and Sustainability
Safety and Sustainability Safety Safety Performance 0.6 2014 Global Coal Power Plant First Quartile TRIR – Solomons LLC Maintaining good safety performance 0.5 • > 65% increase in hours worked since 2012 0.4 Sustainability 0.3 0.2 All Drax biomass procured against robust industry leading sustainabil
Slide 6: Drax Power – Generation
Drax Power – Generation Biomass now > 30% of generation capacity Generation by Fuel Type • Two converted units Generation 2014 2013 • Third unit – high biomass burn from Q3 2015 (Net Sales) • First major planned outage for biomass unit in 2015 Coal TWh 18.8 71% 23.3 88% Capacity payments secured for
Slide 7: Drax Power – Markets and Trading
Drax Power – Markets and Trading Market developments UK Gas Prices(1) 75 Commodity outlook challenging 70 • Falling oil prices SUM 15 65 • Mild winter across Europe WIN 15 - Weak gas market, high gas storage 60 SUM 16 p/th WIN 16 - Weak power markets 55 • International coal remains weak 50 • Lower 2
Slide 8: Drax Power – Fuel
Drax Power – Fuel Coal Biomass Rail Wagons Change in coal profile • Decrease in UK coal • Increase in international (low nitrogen) coal Biomass Good progress with near-term biomass volumes • > 6Mt contracted for 2015/16 ROC year • Disruption in EU demand continues to assist with near-term volumes Lo
Slide 9: Drax Power – Fuel: Forestry Economics
Drax Power – Fuel: Forestry Economics Drax biomass sourced from established Indicative US South Stumpage (US$/short ton) commercial forests • Primary economic driver is sawlog - Cost too high for use in biomass generation • Biomass generation uses low grade wood - Forest sourced thinnings, branches,
Slide 10: Drax Power – Fuel: Biomass Sourcing
Drax Power – Fuel: Biomass Sourcing Drax fuel supply Drax Woody Biomass Sourcing by Product and Region • All wood pellets manufactured from low grade wood 2014 Burn Sawdust and Chips Forest Sourced(1) Total(4) Mix % • Major carbon savings > 80% vs. coal in 2014 US 0.4Mt 1.9Mt 2.3Mt 59% • Sourced fro
Slide 11: Haven Power – Retail
Haven Power – Retail Credit-efficient route to market Haven Power Sales 14 Retail sales 12.4TWh at NBP(1) (2013: 8.9TWh) 12 • (1) In line with strategic plans (12-15TWh by 2015) Volume at NBP (TWh) 10 • I&C and SME markets(2) 8 2014 performance 12.4 • Retail sales £1.1bn (2013: £751m) 6 • 13.3TWh al
Slide 12: Drax Biomass Inc – Biomass Self-supply
Drax Biomass Inc – Biomass Self-supply US Gulf construction Hammer Mills – Morehouse, October 2014 On schedule and budget • Amite 450kt pa pellet plant in commissioning - First pellets produced - COD(1) forecast March • Morehouse 450kt pa pellet plant - Log-line commissioning - COD forecast June • P
Slide 13: 2014 Financial Review
2014 Financial Review Tony Quinlan – Finance Director EBITDA Net Debt(2) £229m £99m Total Dividends Underlying Earnings Per Share(1) 23.7p 11.9p (£48m) Final dividend 7.2p (£29m) • 2014 profits – marginally ahead of expectations • Biomass transformation • Year on year - Capex on schedule and budget
Slide 14: Group Income Statement
Group Income Statement % Year- In £m (unless otherwise stated) 2014 2013 on-Year Revenue 2,805 2,062 Cost of Sales (2,356) (1,617) Gross Margin 449 445 Operating Costs (220) (215) EBITDA 229 230 Flat Exceptional items(1) (20) - IAS39 Unrealised Gains / (Losses) on Derivative Contracts 66 (110) Depre
Slide 15: Drax Power – Gross Profit
Drax Power – Gross Profit % Year- In £m (unless otherwise stated) 2014 2013 on-Year Revenue(1) • Increases in net sales volume and average achieved price Power Sales 2,080 1,669 - 2014: 26.7TWh / £51.3/MWh - 2013: 26.2TWh / £51.0/MWh ROC/LEC Sales 315 63 Ancillary Services Income 13 12 • Cost of coa
Slide 16: Haven Power – Gross Profit
Haven Power – Gross Profit • Retail sales (at customer meter) % Year- In £m (unless otherwise stated) 2014 2013 - 2014: 11.8TWh (£92.4/MWh) on-Year - 2013: 8.1TWh (£92.7/MWh) Revenue 1,090 751 45% • Increasing power purchases reflects sales growth, at Cost of Sales a slightly lower cost per MWh Cost
Slide 17: Group Operating Costs
Group Operating Costs Operating costs – £220m in 2014 2015 Operating Cost Guidance 245 2014 total operating cost increase £5m in line 240 with guidance • Investment in growth (US business, CCS): +£11m 235 • Underlying cost inflation: +£7m (3%) 230 £m • Single outage year: -£13m 225 220 2015 operatin
Slide 18: Group Capital Expenditure
Group Capital Expenditure On track to deliver biomass transformation Total Transformation Capex in line with original cost guidance 700 £650m - £700m 650 • 3 unit conversions, US pellet investments and 600 IED(1) compliance 550 £m 500 2014 total capex £201m 450 2015 total capex guidance c.£150m 400
Slide 19: Group Cash Flow
Group Cash Flow 2014 Cash Flow 550 450 £m 350 250 150 Opening Cash EBIT DA Working ROCs Tax Capex Loans Debt Service Dividends Closing Cash Capital / Other Working Capital / Other ROCs / LECs Tax Capex Dividends Closing Cash (£58m) (£45m) (£14m) (£200m) (£55m) £221m Biomass stocks increase £39m Incr
Slide 20: Financing, Working Capital and Distributions
Financing, Working Capital and Distributions Debt facilities Term Loan Maturity Profile 350 Loans • M&G (2012): £100m term loan 300 • GIB(1): £50m term loan 250 • Friends Life: £75m term loan 200 £m - Underpinned by guarantee from I-UK(2) 150 • M&G (2014): £100m loan 100 Other facilities 50 • £400m
Slide 21: 2015 Guidance
2015 Guidance Dome Storage at Drax Power Station Guidance Summary • Depreciation: c.£100m-£105m • Net interest: similar to 2014 2015 Financial • Effective tax rate: close to corporation Guidance tax rate • Group Opex: c.£240m • Group Capex: c.£150m 2015 Dividend • 50% of underlying profit after tax
Slide 22: Financial Review Summary
Financial Review Summary 2014 performance Biomass Infrastructure at Drax • Regulatory disappointments, weak commodity markets • Solid financial performance • Good operations • Robust balance sheet 2015 outlook • Current earnings outlook reflects weak commodity markets Biomass transformation • Invest
Slide 23: Transformation Milestones Update
Transformation Milestones Update Dorothy Thompson – Chief Executive Area Milestone Original Target Update Progress 1st unit 2013 Q2 2013 Unit conversions 2nd unit 2014 Q4 2014 (1) 3rd unit 2016 2015/2016 On track Biomass (2) 6Mt of sustainable fuel secured 2016/17 ROC year 2016/17 ROC year On Tr
Slide 24: Completing the Transformation
Completing the Transformation 2013 2014 2015 2016 1st Unit 2nd Unit 2nd Unit 3rd Unit Converted ECF(1) Converted High biomass burn from April 2013 May 2014 October 2014 Q3 2015 2015 – 3 biomass units • 3rd unit high biomass burn from Q3 2015 - EU State aid clearance process underway - Early CFD comm
Slide 25: Benefits of Biomass Conversion
Benefits of Biomass Conversion Carbon Savings Differences in Cost: • 12Mt pa CO2 is equivalent to removing 3.3m cars Biomass and Offshore Wind in 2020 from the roads or 1,750 new onshore wind turbines(1) • Subsidy cost £50-60/t CO2 from conversion compared £3bn1 to £200/t offshore wind(2) NPV of cos
Slide 26: Financial Benefits of Biomass Conversion
Financial Benefits of Biomass Conversion Protecting the business Illustration of Biomass Impact on 2013 / 2014 EBITDA 350 Major carbon savings Drax as a coal-only Drax as a biomass 300 generator and coal generator Structural erosion of coal spreads • Increasing cost of UK carbon tax 250 EBITDA Bioma
Slide 27: Conclusion
Conclusion 2014 was a very challenging year Significant regulatory headwinds Major deterioration in commodity markets Low But we have made good progress Carbon Foundations laid for a much stronger business Three unit conversion on schedule and budget Cost Reliable Effective Flexible Expect value of
Slide 28: Appendix
Appendix
Slide 29: Appendices
Appendices 1. Definitions Dust Extraction System 2. Tax Reconciliation 3. 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 Floor Drax Grou
Slide 30: 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 31: 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 32: Appendix 2: Tax Reconciliation
Appendix 2: Tax Reconciliation UK corporation tax (CT) rates Tax Reconciliation • 21.5% for 2014 and 23.25% for 2013 Reported Underlying 2014 tax rate In £m (unless 2014 2013 2014 2013 otherwise stated) • Underlying tax rate 20% • Underlying rate excludes after tax impact of Profit Before Tax 166 32
Slide 33: Appendix 3: ROC Reporting
Appendix 3: ROC Reporting Balance sheet reconciliation 2014 Balance Sheet – ROC and LEC Assets • ROC/LECs generated – estimated benefit of generating electricity with biomass ROC and LEC Assets £m • Sold or utilised – original estimated balance sheet At 31 December 2013 140 value charged to cost of
Slide 34: Appendix 4: Financial Calendar
Appendix 4: Financial Calendar Event Date Interim Management Statement Mid May Financial Half Year End 30 June 2015 Announcement of Half Year Results 28 July 2015 Drax Group plc 34
Slide 35: Appendix 5: IAS Treatment
Appendix 5: 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 Income Statement Foreign Exchange Hedge Reserve and Income Statement Carbon Hedge Reserve Drax Group pl
Slide 36: Appendix 6: Power Market
Appendix 6: Power Market UK power market Range of Fossil Fuel Spreads by Efficiency (Baseload) 20 Power prices weaker in 2014 – driven by 15 gas market (1) 10 Dispatch dynamics £/MWh 5 Plant efficiencies significant factor in load profile 0 • Different load factors for same fuel plant (5) • Low GSS
Slide 37: Appendix 7: Gas Market
Appendix 7: Gas Market Dramatic fall in oil prices to six year low UK LNG Deliveries Year on Year • Driven by over supply 1600 1400 • Increased US shale production 1200 • OPEC unwilling to give up market share 1000 • mcm Lower oil prices filtering through to lower gas 800 contracts with an oil-index
Slide 38: Appendix 8: Coal Market
Appendix 8: Coal Market Change in API2 price in home currencies: Prompt API2 prices sub $60/t 10% • Seaborne market remains oversupplied • Producers in 2014 continued to look to cut unit costs/improve margins USD - Strong USD offered support for exporters GBP (10%) • Lower global freight prices AUD
Slide 39: Appendix 9: Carbon Market
Appendix 9: Carbon Market European market remains oversupplied Carbon Prices 9 Phase III EU ETS – recovery from 2013 lows 8 • Back-loading now approved 7 Dec-14 - 900Mt removed between 2014 – 2016 6 €/tonne - Reintroduced back end of decade Dec-15 5 • All 2014 free allowances issued 4 Dec-16 EU cont
Slide 40: Appendix 10: Forward Spread Movements
Appendix 10: Forward Spread Movements Dark Green Spread Clean Spark Spread 25 6 5 20 4 3 15 £/MWh £/MWh 2 10 1 0 5 (1) 0 (2) Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Winter 14 Summer 15 Winter 15 Winter 14 Summer 15 Winter 15 Summer 16 Winter 16 Summer 16 Winter 16 Sourc
Slide 41: Appendix 11: Commodity Price Movements
Appendix 11: Commodity Price Movements Power Prices Coal Prices (API 2) 120 65 110 100 WIN 14 £/MWh 55 Cal 14 $/tonne 90 SUM 15 80 Cal 15 WIN 15 45 SUM 16 Cal 16 70 WIN 16 60 35 50 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Sources: Brokered Trades, Spectron Source: McClos
Slide 42: 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 2015) Opted Out Units Drax Drax Power Coal 3870 3870 0 Eggborough EPL Coal 1960 1960 0 Cottam EDF Energy Coal 200
Slide 43: 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 £/tonne CO2 • Based on fuel (coal) consumption 30 25 Tax per tonne CO2 set annually 2
Slide 44: Preliminary Results
Preliminary Results 12 Months Ended 31 December 2014 24 February 2015