Drax earnings slide in first half after unplanned outages

Drax Group posted its half-year results to 30 June on Tuesday, reporting that while its full-year expectations remained unchanged, its first half was impacted by two unplanned outages.

The FTSE 250 firm said first half EBITDA was lower year-on-year to £102m from £121m, due to those outages, with other areas said to be performing “well”.

Its statutory loss before tax included a lower level of first half EBITDA and asset write off.

The board said the refinancing of Drax was now complete, with the company having swapped floating for fixed rate debt with a 7.5-year maturity.

It also pointed to a “sustainable and growing” dividend, with the 2018 interim dividend rising to £22.4m, or 5.6p per share, from £20m a year ago.

The board said it expected a 2018 full-year dividend of £56m.

It was also still progressing its £50m share buyback programme, with £13m completed as at 30 June.

On the strategic front, the Drax board said it had made “good progress” with its initiatives, ad was on track to deliver long-term objectives.

The third biomass pellet plant, LaSalle Bioenergy, was commissioning ahead of plan and was on track to reach full capacity in the first quarter of 2019.

Drax said the conversion of its fourth biomass generating unit was also on schedule and budget, with commissioning in the late summer.

The programme for a long-term reduction in the cost of biomass, including sawmill co-location and rail spur investment, was also ongoing, with the board adding it was “confident” in the growing requirement for system support services over coming years.

Repowering of its coal-to-gas asset was highlighted, with the board saying a “detailed” planning application was accepted for review in June.

On its four open cycle gas turbines, Drax said two projects were in the next capacity market auction, with planning applications accepted for review for the remaining two projects.

The company’ B2B energy supply division was said to be delivering “solid progress” to grow the number of customer meters, the board added.

Looking ahead, Drax reiterated that its full-year financial expectations remained unchanged.

In the generation division, it said it was targeting the fourth biomass unit conversion, improved margins, on target availability and capacity payments.

It was also looking for continued growth in pellet production and B2B energy supply.

“Drax continues to be at the heart of decarbonising UK energy, securing government support to convert a fourth unit to biomass and piloting a Bioenergy Carbon Capture and Storage project, supporting the UK Government's carbon capture and storage ambitions,” said Drax chief executive officer Will Gardiner.

“Full year EBITDA expectations remain unchanged. However, first half EBITDA was lower, principally due to two specific generation outages.”

Gardiner said the company made “excellent progress” with its pellet production business, driving down costs while producing at record levels, and its B2B energy supply business continued to increase customer numbers.

“We also remain on track with our investment projects: the conversion of a fourth unit to biomass, and the development of our open cycle gas turbine and coal-to-gas repowering options.

“We remain focused on safe and efficient operations and returns to shareholders and expect to declare a full year dividend of £56m for 2018.”