Drax dives as interim results hit by larger accounting charges

Power plant operator Drax increased operating profits by more than 70% in the first half of the year but slumped to a pre-tax loss after increases to depreciation and amortisation costs and unrealised losses on derivative contracts.

After the acquisition of SME energy supplier Opus Energy and the launch of a biomass unit, Drax generated revenue of £1.8bn in the six months to 30 June, up 21% on the same period last year.

Earnings before interest, tax, depreciation and amortisation leapt 73% to £121m but while a loss before tax of £83m compares badly with the profit of £184m a year ago this reflects accelerated depreciation of coal-specific assets and amortisation of intangible assets from the Opus acquisition and an increased net finance charge.

Chief executive Dorothy Thompson said the new strategy launched in December was not only creating greater diversification for the business but also shifting the earnings profile "to deliver higher quality more stable earnings, with opportunities for long-term growth".

Underlying earnings per share almost halved to 2.2p from 4.2p and a reported loss per share of 17p was the bottom line, which was worse than some analysts were expecting.

Deutsche Bank had anticipated a step up in EBITDA to £115m, but forecast the higher depreciation and interest costs were likely to leave its EPS broadly flat at 4.2p. Analysts at Citi were looking for EBITDA of £114m and EPS of 4.5p and a dividend of 6.1p.

However, the board had already in July declared an interim dividend of 40% of the expected full year payout, which came out at 4.9p per share.

After the acquisition of Opus for £367m and a third wood pellets plant for $35m, net debt stood at £372m at the half year stage, up from December's £93m, including cash £197m in the bank.

Thompson said it was a half year of "good progress" with the new strategy.

"Central to our strategy is the delivery of targeted growth through deploying our expertise across our markets and, in so doing, diversifying, growing and improving the quality of earnings whilst reducing exposure to commodity market volatility," she said.

Progress was being made on four new rapid response gas power projects and research and innovation work has identified potentially attractive options to repurpose the remaining coal assets, she added.

Shares in Drax fell 8% to 318.2p in early trade on Wednesday.