25 April 2024
Drax Group plc
("Drax", "the Group", "Drax Group", "the
Company"; Symbol: DRX)
Q1 Trading Update - Strong System
Support Performance and Balance Sheet Refinancing
Highlights
·
Strong system support and generation performance
during first three months of 2024
·
Full year 2024 expectations for Adj.
EBITDA(1) in line with analysts' consensus
estimates(2)
·
New balance sheet facilities further extending
maturity profile
·
c.£408 million(3) of term-loans with
three to five year maturities
·
€350 million five-year (2029) bond
·
Repayment of 2025 bonds
·
Notice of redemption of $500 million 2025 bond
issued
·
Tender process for repurchase of €250 million 2025
bond commenced
·
Final dividend of 13.9 pence per share, subject to
shareholder approval at today's AGM
·
Total dividend for 2023 of 23.1 pence per share
(2022: 21.0 pence per share)
Drax Group CEO, Will Gardiner said: "We
continue to deliver a strong system support and generation
performance, providing dispatchable, renewable power for millions
of homes and businesses.
"We are excited about the opportunity to
deliver BECCS at Drax Power Station, the country's largest source
of 24/7 renewable power by output. With a bridging mechanism and
the right support from Government, our BECCS plans could help the
UK meet its net zero targets and continue to support the country's
long-term energy security, while creating thousands of new jobs
across the region.
"BECCS can also help deliver the global energy
transition and, through our new global BECCS business, we are
continuing to develop options for projects in North America. These
could provide long-term, large-scale carbon removals and attractive
opportunities for growth as part of a potential trillion-dollar
global carbon removals market."
Biomass Generation
Drax Power Station, the UK's largest source of
24/7 renewable power by output - supported by its integrated global
biomass supply chain - is performing well, supporting UK energy
security with flexible and reliable renewable power generation and
a wide range of system support services.
As the demand for power and flexibility grows,
Drax believes the size, flexibility and location of the asset make
it an integral long-term part of the UK energy
transition.
Flexible
Generation and Energy Solutions
The Group's pumped storage and hydro business
is performing well, providing flexible and renewable power
generation and a wide range of system support services.
Drax believes that the retirement of
dispatchable thermal assets and increased reliance on intermittent
renewables in the UK system, as well as a long-term increase in
demand, will drive a growing need for dispatchable power and system
support services, creating long-term enduring earnings
opportunities for these assets.
Construction of three new Open Cycle Gas
Turbines with combined capacity of c.900MW continues, with
commissioning expected to take place from September
2024.
Generation contracted power
sales
As at 22 April, Drax had over £2.9 billion of
contracted forward power sales between 2024 and 2026 on its ROC,
pumped storage and hydro generation assets - 23.3TWh(4)
at an average price of £125.4/MWh(5). Both 2024 and 2025
are effectively fully hedged.
The Group has a further 3.4TWh of
CfD generation contracted for 2024 and 2025.
Contracted power sales as at 22 April 2024
|
2024
|
2025
|
2026
|
|
|
|
|
Net ROC, hydro and gas (TWh)(4)
|
10.4
|
9.9
|
3.0
|
-
Average achieved £ per MWh(5)
|
153.1
|
108.4
|
84.8
|
|
|
|
|
CfD (TWh)
|
3.2
|
0.2
|
-
|
|
|
|
|
Pellet
Production
The Group's pellet production business has
started the year well. The market remains challenging but, as a
vertically integrated producer, user, buyer, and seller of biomass,
Drax operates a differentiated model from its peers and sees the
current global biomass market as representing a favourable balance
of risks and opportunities for the Group.
Drax is positive on the outlook for biomass
demand and expects this to grow, as sustainable woody biomass is
increasingly used for BECCS, as well as for next-generation
sustainable aviation fuels (SAF) and the Group continues to develop
a pipeline of sales opportunities in these new markets.
Full Year Expectations
Drax continues to expect 2024 full year
Adjusted EBITDA to be in line with analysts' consensus estimates,
subject to continued good operational performance.
Balance Sheet
Between February and April 2024, the Group
completed c.£408 million of new term-loan facilities, which
includes an optional uncommitted extension of £25
million.
These combined facilities have two
tranches maturing in 2027(3) and 2029(3) and
a margin referenced over SONIA (Sterling Overnight Index Average)
for sterling loans and over EURIBOR (Euro Interbank Offered Rate)
for euro loans.
In April 2024, the Group priced a new €350
million five-year (BBB-/BB+) bond issue with a rate of
5.875%.
Taken together these facilities provide
proceeds of over £700 million, extending the Group's maturity
profile beyond 2027. The proceeds will be used for the repayment of
2025 maturities. As such, the Group has launched a tender offer
process for its €250 million 2025 bond and also announced the full
redemption of its $500 million 2025 bond, both of which are
expected to complete in May 2024.
Ofgem
In May 2023, Ofgem announced the opening of an
investigation into Drax Power Limited's annual biomass profiling
reporting under the Renewables Obligation scheme. In its opening
statement, Ofgem confirmed that it had not established any
non-compliance that would affect the issuance of ROCs. Drax awaits
the conclusion of this investigation.
Bridging
Mechanism and UK BECCS
In January 2024, the UK Government launched a
consultation on a bridging mechanism to support large-scale biomass
generators transitioning from their existing renewable schemes to
BECCS. The consultation concluded in February 2024 and Drax awaits
the Government's response, which is expected shortly.
Over recent months Drax has continued to
formally engage with the UK Government regarding a bridging
mechanism and UK BECCS, and the outcome of the consultation is
expected to be another stage in this process.
BECCS -
Global
The Group is continuing to participate in the
growing market for Carbon Dioxide Removals (CDRs), with incremental
CDR sales at prices of up to $350/t. The certificates would be
deliverable in 2030, in line with the Group's plans for a first
new-build BECCS plant in the US South.
BECCS Done
Well
In 2022, Drax invited Jonathon Porritt,
environmental campaigner and co-founder of Forum for the Future, to
convene a High Level Panel (the Panel) to conduct an independent
inquiry into BECCS, with Forum for the Future acting as
Secretariat.
The Panel outlined 30 conditions that would
demonstrate that BECCS from woody biomass can be "done well",
helping to deliver positive outcomes for nature, climate and
people.
In July 2023 Drax published its initial
response to the Panel's recommendations and in April 2024 Drax
published a second and final response. Further details are
available via the link below.
DR1908_Final-response-to-BECCS-DONE-WELL-Porritt-report_BF_V014-1.pdf
(drax.com)
Other
Drax will report its half year results on 26
July 2024.
Notes:
(1) Earnings before
interest, tax, depreciation, amortisation, excluding the impact of
exceptional items and certain remeasurements. Adjusted EBITDA
includes the Electricity Generator Levy (EGL).
(2) As of 22 April 2024,
analyst consensus for 2024 Adj. EBITDA (incl. EGL) was £968
million, with a range of £881 - 1,097 million. The details of this
company collected consensus are displayed on the Group's
website:
https://www.drax.com/investors/consensus/.
(3) 2027 term-loan: €135
million and £145 million, 2029 term-loan: €50 million and £80
million, with an optional uncommitted extension of £25
million.
(4) Includes 3.5TWh of
structured power sales in 2025 and 2026 (forward gas sales as a
proxy for forward power), transacted for the purpose of accessing
additional liquidity for forward sales from RO units and highly
correlated to forward power prices.
(5) Presented net of cost
of closing out gas positions at maturity and replacing with forward
power sales.
Enquiries:
Drax Investor Relations: Mark
Strafford
mark.strafford@drax.com
+44 (0) 7730 763 949
Media:
Drax External Communications: Andy
Low
andy.low@drax.com
+44 (0) 7841 068 415
Website: www.Drax.com
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 financial position, strategy,
projected costs, plans, beliefs, and objectives for the management
of future operations of Drax Group plc ("Drax") and its
subsidiaries (the "Group"), are not warranted or guaranteed. By
their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend on
circumstances that may occur in the future. Although Drax believes
that the statements, expectations, statistics and projections and
other information reflected in such statements are reasonable, they
reflect Drax's current view and no assurance can be given that they
will prove to be correct. Such events and statements involve risks
and uncertainties. Actual results and outcomes may differ
materially from those expressed or implied by those forward-looking
statements. There are a number of factors, many of which are beyond
the control of the Group, which could cause actual results and
developments to differ materially from those expressed or implied
by such forward-looking statements. These include, but are not
limited to, factors such as: future revenues being lower than
expected; increasing competitive pressures in the industry;
uncertainty as to future investment and support achieved in
enabling the realisation of strategic aims and objectives; and/or
general economic conditions or conditions affecting the relevant
industry, both domestically and internationally, being less
favourable than expected, including the impact of prevailing
economic and political uncertainty, the impact of strikes, the
impact of adverse weather conditions or events such as wildfires.
We do not intend to publicly update or revise these projections or
other forward-looking statements to reflect events or circumstances
after the date hereof, and we do not assume any responsibility for
doing so.
END