Drax earnings rise as it looks for further investment opportunities

Drax Group announced a 9% improvement in group adjusted EBITDA in its full-year results on Tuesday, to £250m, which it said was a result of continued strength in its cash generation and balance sheet.

The FTSE 250 power generation firm said its net debt-to-adjusted EBITDA ratio was 1.3x, compared to 1.6x in 2017, and said net cash from operating activities totalled £311m in the 12 months ended 31 December, down from £315m year-on-year.

Net debt stood at £319m at year-end, falling from £367m.

The board also reported a 15% increase in the dividend paid per share to 14.1p, and confirmed the completion of its £50m share buyback programme.

Total profit before tax stood at £14m, which included gains primarily related to foreign currency hedging of £38m, which was a swing from its total loss before tax of £204m including unrealised losses of £177m.

On the operational front, Drax said the acquisition of ScottishPower Generation had accelerated its strategy, adding a 2.6GW multi-site, multi-technology portfolio of pumped storage, hydro and gas to its books.

The board said it was a “strong” strategic fit with the UK's need for flexible, low carbon and renewable generation, with the acquisition generating “high quality” earnings with expected returns significantly in excess of the weighted average cost of capital.

Drax also reported positive progress with its other strategic initiatives, reporting the successful low-cost conversion of its fourth biomass unit, and the commissioning of its third US biomass pellet plant, which was now fully operational.

It said it had made progress with its biomass cost reduction programme, including sawmill co-location and rail spur development.

The company had commenced its ‘BECCS’ pilot project and equity investment in ‘C-Capture’, saying the technology was proven with carbon dioxide captured.

It also developed its B2B Energy Supply customer and IT platform.

Looking ahead, Drax said it expected continued growth in adjusted EBITDA, cash generation and its dividend.

It said it would continue the integration of ScottishPower Generation, and continued to expect the Capacity Market to be reinstated on the same or similar basis.

Drax said it saw “attractive” investment options for growth, with biomass cost reduction, biomass capacity expansion and new gas.

“Drax is now one of the leading generators of flexible, low carbon and renewable electricity in the UK,” said chief executive officer Will Gardiner.

“As the grid decarbonises, our ability to support intermittent renewables will become increasingly important as we strive to deliver our purpose of enabling a zero carbon, lower cost energy future.

“Drax performed well in 2018.”

Gardiner said the firm’s commitment to operating safely and sustainably remained at the board’s core.

“We commissioned our third pellet production plant, which contributed to our good results.

“After a difficult first quarter for our Power Generation business, we delivered strong availability and financial results.

“Whilst the year was challenging for our B2B Energy Supply business, we continued to grow our customer base and are investing in the significant opportunity created by smart meters.”

The board was confident in its ability to continue growing its earnings and advancing its strategy through the year, Gardiner said.

“We have attractive investment opportunities throughout our business, and while short-term uncertainty over the Capacity Market remains, we look forward to developing those opportunities in a disciplined fashion.”