Drax earnings drop amid weak commodity markets

Drax Group posted a drop in underlying earnings for the first half of the year amid weak commodity markets and following the removal of the climate change levy exemption.

In the six months ended 30 June, underlying earnings came in at £17m from £41m in the first half of last year, while earnings before interest, taxes, depreciation and amortisation slumped to £70m from £120m.

As a result, the company declared an interim dividend of 2.1p, down from 5.1p the year before.

Statutory pre-tax profit rose to £184m from £53m even as revenue dropped to £1.49bn from £1.51bn as the company booked £163.4m in unrealised gains on derivative contracts.

Chief executive Dorothy Thompson said: “Drax delivered a good operational performance over the last six months, a period during which around 70% of our electricity generation was renewable - enough to power Leeds, Manchester, Sheffield and Liverpool combined - truly a renewable northern powerhouse.

"Whilst we have seen signs of power and commodity prices improving, our financial performance was impacted by the challenging environment in which we operate.”

Drax said full-year EBITDA remains subject to the timing of the contracts for difference award and is now expected to be around the low end of the consensus range of £146m to £185m.

RBC Capital Markets said the results and the reduced guidance are a minor negative. “Over the longer term we reiterate our underperform recommendation as we continue to see Drax as a limited life asset with no cash flow visibility beyond 10 years.”

At 1026 BST, Drax shares were down 1.1% to 348.50p.