Drax Group Plc · LSE:DRX
Drax — H1 2024 Earnings Presentation
42 slides from Drax's earnings presentation, Jul 26, 2024
Slide 1: Half Year Results
2024 Half Year Results 26 July 2024
Slide 2: Presenters
Presenters Will Gardiner Chief Executive Officer Andy Skelton Chief Financial Officer 2
Slide 3: Our Purpose, Our People
Our Purpose To enable a zero carbon, lower cost energy future Our People Valued members of a winning team with a worthwhile mission 3
Slide 4: H1 2024 Overview
H1 2024 Overview Strong operational and financial performance supports improved outlook for 2024 Strong operational and financial performance, with growing returns to shareholders • 24% growth in Adj. EBITDA driven by renewable generation, pellet production and I&C • 49% reduction in safety incident
Slide 5: Recap on Business Today and Long-term Targets
Recap on Business Today and Long-term Targets Asset portfolio and developments aligned to energy transition and security of supply FlexGen & Energy Biomass Pellet Attractive options for 1 2 Pellet Production 3 4 Solutions Generation Production long-term growth 1.5GW portfolio >5Mt pa of capacity c.2
Slide 6: Summary of H1 Performance by Business Unit
Summary of H1 Performance by Business Unit 24% growth in Adj. EBITDA driven by increased levels of renewable generation, pellet production and I&C Business unit H1-24 (£m) H1-23 (£m)(2) Pumped Storage and Hydro 76 141 1 Energy Solutions – I&C 36 27 – SME (14) 7 2 Pellet Production 65 43 3 Biomass Ge
Slide 7: FlexGen & Energy Solutions
1 FlexGen & Energy Solutions Expect market conditions and fundamentals to support post 2027 recurring Adj. EBITDA of >£250m pa 1.5GW portfolio of pumped storage, hydro and OCGTs Strong and diversified revenue mix underpins >£250m target Pumped storage and hydro (0.6GW) • >£280m of Capacity Market ag
Slide 8: FlexGen – Pumped Storage and Hydro
1 FlexGen – Pumped Storage and Hydro Strong performance since 2019 underpinned by growing need for system support services Further opportunities from higher power prices and volatility Growing system cost (£bn) FlexGen EBITDA growth underpinned by system need (£m) 4 160 c.18% pa growth in system cos
Slide 9: FlexGen – Pumped Storage – Operational Indicators
1 FlexGen – Pumped Storage – Operational Indicators Changing system needs are driving demand for services from Cruachan and long duration storage assets Offshore wind (TWh) Hours of negative pricing 50 250 Changing power system: 40 200 Increased levels of intermittent 30 150 renewables and price vol
Slide 10: FlexGen – Pumped Storage
1 FlexGen – Pumped Storage Cruachan to become a 480MW site by 2027, with opportunity to increase to 1.1GW by 2030 Refurbishment and expansion of Cruachan I Development of option for Cruachan II £80m upgrade and 40MW expansion 600MW expansion of Cruachan site • 2 x 20MW expansion of units • Lower cos
Slide 11: FlexGen – OCGTs
1 FlexGen – OCGTs Flexible, dispatchable generation and system support assets 3 x 299MW units (c.900MW) • Investment underpinned by Capacity Market agreements • Low fixed-cost base • Highly complementary to existing FlexGen assets Mixed revenue stack aligned with changing system needs • c.£275m from
Slide 12: Energy Solutions (Customers)
1 Energy Solutions (Customers) Renewable power and energy solutions I&C Strong operational and financial performance • Effective route to market to maximise value of large-scale renewable generation Supporting route to market for small renewable sites • Renewable PPA portfolio with >2,000 smaller ge
Slide 13: Pellet Production
2 Pellet Production Targeting post 2027 recurring Adj. EBITDA >£250m Production Good progress in H1 2024 • Increased output (H1-24: 2.0Mt, H1-23: 1.9Mt) • Improving margin Development of new production capacity supports target • Aliceville expansion commissioned H1-24 (130kt) • Longview (450kt) Sale
Slide 14: Biomass Generation
3 Biomass Generation >£1bn of Est. Post-tax Operating Cash flows (Jan-24 to Mar-27) Contracted power sales (22 July 2024) 2024 2025 2026 Net RO, hydro and gas (TWh)(2) 11.0 10.0 4.8 Average achieved £ per MWh(3) 150.9 107.1 79.7 CfD (TWh)(4) 3.9 0.8 - 2024 to 2026: RO, pumped storage and hydro forwa
Slide 15: Biomass Generation – Long-term Value from Power and Carbon
3 Biomass Generation – Long-term Value from Power and Carbon UK needs Drax Power Station for security of supply Peak demand exceeds de-rated dispatchable capacity (GW) 100 • UK’s largest power station – dispatchable, flexible and renewable • Backed up by resilient North American supply chain 75 Crit
Slide 16: Attractive Options for Long-term Growth – BECCS
4 Attractive Options for Long-term Growth – BECCS Developing a pipeline of projects globally to provide attractive investment opportunities in long-term, large-scale carbon removals – ambition for >20Mt pa through 2030s UK BECCS Global BECCS Drax Power Station First site shortlisted in US South • Ta
Slide 17: Financial & Operational Review
Financial & Operational Review A strong financial and operational performance providing dispatchable, renewable power to the UK from our biomass, pumped storage and hydro portfolio Helping Energy Solutions customers on their decarbonisation journeys
Slide 18: Financial Summary
Financial Summary Strong financial performance Adj. Total Cash and Committed Facilities Cash Generated from Operations Net Debt(3) £1,035m EBITDA(1/2) £515m £400m (December 2023: £1,084m) (December 2023: £639m) (H1-23: £404m) £515m (H1-23: £417m) Adj. Basic Earnings Per Share Interim Dividend Expect
Slide 19: High-quality Asset Base Underpins Current and Future Earnings and Cash Flow
High-quality Asset Base Underpins Current and Future Earnings and Cash Flow Strong financial and operational performance in H1-24 FlexGen & Pellet Biomass Options for H1-24 Adj. EBITDA 1 Energy 2 Production 3 Generation 4 long-term Total Solutions growth Pellet Production - 65 - - 65 Biomass Generat
Slide 20: FlexGen & Energy Solutions, Pellet Production and Biomass Generation
FlexGen & Energy Solutions, Pellet Production and Biomass Generation Targeting post 2027 recurring Adj. EBITDA >£500m pa plus expect significant value from Biomass Generation FlexGen & Energy Solutions Pellet Production 1 H1-24 Adj. EBITDA: £98m 2 H1-24 Adj. EBITDA: £65m Targeting post 2027 recurrin
Slide 21: Balance Sheet
Balance Sheet Strong balance sheet and liquidity £682m of new facilities with maturities 2027-2029 Balance of maturities now weighted to 2029-2030 • New c.£383m term-loan facilities with 2027-2029 maturities As at July 2024 (£m) • New €350m 2029 bond 1,200 • Extension of £300m revolving credit facil
Slide 22: Capital Investment
Capital Investment Investment in core assets and strategy H1-24 FY-24 Key areas Actual £m Estimate £m Growth Biomass, BECCS, OCGTs and enhancement projects 108 ~270 Maintenance Includes major planned biomass outages 34 ~100 Other Health, safety, environment and IT 5 ~30 Total 147 360-400 Growth • Lo
Slide 23: Capital Allocation Policy
Capital Allocation Policy Implemented in 2017, continues to support strategy 1. Maintain credit rating 2. Invest in core business 4. Return surplus capital beyond 3. Sustainable and growing dividend investment requirements 23
Slide 24: Outlook
Outlook Strong operational and financial performance supports improved outlook for 2024 FlexGen and Energy Solutions and Pellet Production • Targeting >£500m of recurring Adj. EBITDA post 2027 Biomass generation • Strong cashflows and long-term role in UK energy system Long-term options for growth a
Slide 25: Appendices
Appendices 26 July 2024
Slide 26: FlexGen – Pumped Storage and Hydro – Long-term Indicators
1 FlexGen – Pumped Storage and Hydro – Long-term Indicators UK Gov. net zero targets will require major increase in renewables, system support and carbon removals Increase in renewables drives increased system support and long-term value of FlexGen c.2x increase in demand for power (TWh) Significant
Slide 27: Drax Power Station Post 2027
Drax Power Station Post 2027 Value for Money of BECCS at Drax Bridging mechanism from 2027 to BECCS BECCS at Drax Power Station from 2030 onwards An effective way to help support energy security The only credible option for near-term, large-scale carbon removals available to meet UK targets Consider
Slide 28: Capacity Market
Capacity Market 1 and 15-year agreements provide strong underpin for investment in FlexGen business c.£580m(1) of agreements agreed Capacity Market agreements profile and illustration (£m) Asset Payment period Value £m 60 Pumped storage 1 year agreements (2024-2028) 68 Pumped storage 15-year agreeme
Slide 29: Drax UK Portfolio
Drax UK Portfolio Flexible, renewable generation, system support and energy solutions with opportunity for carbon removals FlexGen and Energy Solutions • 440MW pumped storage • 125MW hydro • 900MW OCGTs • Large I&C book Pumped storage Pumped storage expansion Biomass Generation Hydro • 2.6GW OCGTs B
Slide 30: Group Adj. EBITDA
Group Adj. EBITDA High-quality earnings from a multi-technology portfolio and integrated supply chain H1-24 Adj. H1-23 Adj. Business unit Assets Capacity EBITDA (£m) EBITDA (£m)(2) 18 pellet plants and developments in Canada and US Pellet Production Access to five deep water ports >5Mt 65 43 Biomass
Slide 31: Adj. EBITDA Bridge
Adj. EBITDA Bridge £m 600 400 515 200 417 0 0 H1-23 Adjusted Pellet Biomass Pumped I&C SME Global Innovation, H1-24 Adjusted EBITDA Production storage BECCS cap. projects EBITDA & hydro and other H1-24: £65m H1-24: £393m H1-24: £76m H1-24: £36m H1-24: £(14)m H1-24: £(20)m H1-24: £(21)m H1-23: £43m H
Slide 32: Group Income Statement
Group Income Statement H1-24 H1-23(1) In £m Adj. Results Remeasurements Total Results Adj. Results Remeasurements Total Results Revenue 3,063 95 3,158 3,766 126 3,892 Cost of sales (2,086) 20 (2,066) (2,968) (41) (3,009) Electricity Generator Levy (114) - (114) (35) - (35) Gross profit 864 115 979 7
Slide 33: Pellet Production
Pellet Production Improved production and margin Good progress in H1-24 In £m H1-24 H1-23(1) • Higher output (H1-24: 2.0Mt, H1-23: 1.9Mt) Increased margin Revenue 442 386 • Cost of sales (270) (239) Outlook • Targeting post 2027 recurring Adj. EBITDA of >£250m pa from 5Mt pa Gross profit 172 147 Ope
Slide 34: Generation
Generation High levels of flexible, renewable generation and system support services supporting decarbonisation of energy system and security of supply In £m H1-24 H1-23(1) H1-24 H1-23(1) Revenue Generation Adj. EBITDA (£m) Power sales 1,950 2,523 Biomass 393 226 System support and optimisation 123
Slide 35: Energy Solutions (Customers)
Energy Solutions (Customers) Renewable power and energy solutions I&C In £m H1-24 H1-23(1) Strong operational and financial performance in I&C business Revenue 2,066 2,648 • Effective route to market to maximise value of large-scale renewable generation Cost of sales Supporting route to market for s
Slide 36: Group Cash Flow Statement
Group Cash Flow Statement In £m H1-24 H1-23 Adj. EBITDA 515 417 Working capital (excluding collateral) (154) (38) Collateral 61 51 Other (22) (26) Cash generated from operations 400 404 Debt service and other interest (33) (46) Tax (70) (102) Net cash from operating activities 297 256 Capital invest
Slide 37: Power Generation and System Support Services
Power Generation and System Support Services Drax portfolio provides a full suite of services Pumped Hydro Biomass OCGTs Nuclear Wind Solar System support(2) storage Power £[xxx]m Power Yes Yes Yes Yes Yes Yes Yes (FY22: £175m) generation Renewable Renewable Yes Yes Yes No No Yes Yes power generatio
Slide 38: Renewable Energy Guarantees of Origin (REGO)
Renewable Energy Guarantees of Origin (REGO) Through its biomass and hydro activities Drax is able to deliver 24/7 renewable power Growing demand for renewable power has led to growth in renewable certification schemes REGOs • Certificate scheme which evidence that electricity has been generated fro
Slide 39: Merchant Forward Commodity Prices
Merchant Forward Commodity Prices Baseload Power Price (£/MWh) Peak Power Price (£/MWh) 500 500 450 450 400 400 350 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 Jul-22 Sep-22 Dec-22 Feb-23 May-23 Aug-23 Oct-23 Jan-24 Apr-24 Jun-24 Jul-22 Sep-22 Dec-22 Feb-23 May-23 Aug-23 Oct-23 Jan-24 Apr-
Slide 40: Merchant Carbon Prices
Merchant Carbon Prices UKA Carbon (£/t) EU ETS Carbon (€/t) 120 120 100 100 80 80 60 60 40 40 20 20 0 0 Jul-22 Sep-22 Dec-22 Feb-23 May-23 Aug-23 Oct-23 Jan-24 Apr-24 Jun-24 Jul-22 Oct-22 Jan-23 Apr-23 Aug-23 Nov-23 Feb-24 May-24 Dec-24 Dec-25 Dec-26 Dec-24 Dec-25 Dec-26 Source: ICE Source: ICE 40
Slide 41: Forward Looking Statements
Forward Looking Statements This announcement may contain certain statements, expectations, statistics, projections and other information that are, or may be, forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financia
Slide 42: Half Year Results
2024 Half Year Results 26 July 2024