Drax reduces 2013 final dividend by 18.9%

DividendMax Ltd.

Drax reduces 2013 final dividend by 18.9%

Financial and Operational Highlights

·     2013 underlying earnings ahead of expectations, reflecting good operations and healthy spreads

·     Year on year reduction in earnings driven by increase in carbon costs

·     2014 outlook - spreads weaker with mild winter


Biomass Transformation Highlights

·     First unit converted in April - operating performance surpassing expectations

·     Good progress with unit optimisation - now expect output of 630MW, efficiency only 0.5% less
 than coal

·     All construction projects on schedule and budget:

Drax site biomass storage and delivery systems fully operational for first unit

In the US, two pellet plants (aggregate capacity 900,000 tonnes p.a.) and port facility on track

·     Plan to modify a further unit to burn increased biomass as an enhanced co-firing unit from May 2014, earning 0.9ROCs, in advance of unit conversion targeted in April 2015

·     CfD Investment Contracts, subject to EU State Aid clearance, will underpin the investment required to secure
 the sustainable biomass supply chain for future unit conversions

Dorothy Thompson, Chief Executive of Drax, said:

"As expected, the increasing cost of carbon drove earnings down year on year. Recognising this, we have been investing significant capital to transform Drax into one of the world's largest renewable generators, burning sustainable biomass. At the same time we have delivered strong operating performance across the business, including notably, good output, efficiency and reliability from our first converted unit.

"We are well placed to secure CfD Investment Contracts for our second and third unit conversions. We look forward to the conclusion of the government's contract award process this Spring. These contracts will underpin the investment required to secure the sustainable biomass supply chain for our second and third unit conversions. We are targeting April 2015, when these contracts become effective, for our next unit conversion and quarter four of 2015 at the earliest, for the third.

"In 2016, we expect half of Drax to be fuelled by sustainable biomass, some 4% of the UK's electricity. In delivering this transformation, we will provide cost-effective, reliable renewable power to consumers, secure jobs at Drax and across the UK supply chain and deliver attractive returns for our investors."


2013 Review


·     EBITDA for 2013 down 23% at £230 million

Year on year reduction reflects increasing carbon costs

·     Underlying earnings per share decreased 32% to 35 pence

Includes impact of higher number of shares in issue following October 2012 placing

·     Low effective tax rate on underlying profits reflects impact of lower corporation tax rates on deferred tax liability, and research and development tax relief

Expect underlying tax rate for 2014 to be more closely aligned with standard corporate rate

·     Capital investment on track

Transformation and IED(4) guidance unchanged at £650 - £700 million

2013 total capital investment of £290 million

2014 total capital investment guidance: c.£200 million

Outlook includes additional investment to optimise biomass units: £90 million (2014 - 2016)

·     Developing plans for further capital investment in supply chain and fourth unit conversion

·     Final dividend of 8.9 pence per share, or £36 million (2012: 10.9 pence per share,
or £44 million), in line with policy to distribute 50% of underlying earnings

·     Strong balance sheet, with net cash of £71 million

Companies mentioned