TIDMDRX
RNS Number : 8192T
Drax Group PLC
19 November 2019
19 November 2019
Drax Group plc
("Drax" or the "Company"; Symbol:DRX)
Investment Programme in Biomass Capacity Expansion and Cost
Reduction;
Capital Markets Day;
Trading Update
Highlights
-- Targeting biomass self-supply capacity of five million tonnes by 2027
- 1.5 million tonnes of existing capacity, plus 0.35 million
tonnes of low-cost capacity announced at the 2019 half year
results
- Evaluating options for a further three million tonnes over the
next seven years
- Supports target to reduce biomass cost by c.30 percent to
c.GBP50/MWh
- Targeting returns significantly in excess of the Group's cost
of capital
-- Trading update - in-line with expectations
- Acquired assets performing strongly
- Capacity Market restored and included in 2019 Adjusted
EBITDA(1)
Will Gardiner, Drax Group CEO said:
"Drax's purpose is to enable a zero-carbon lower cost energy
future. We believe sustainable biomass has a long-term critical
role to play. That's why we plan to supply 80 percent of our
biomass from our own sources - a significant increase on the 20
percent we currently self-supply. Supplying more of our own biomass
will cut costs and reduce supply chain risks, ensuring our biomass
power generation remains viable in the long term. When combined
with carbon capture it will also enable negative emissions, helping
the UK on its path to net zero by 2050."
Capital Markets Day
Drax is today hosting a Capital Markets Day for investors and
analysts.
Will Gardiner and his management team will update on how the
Group is delivering on its purpose. The day will outline the
significant opportunities Drax sees in growing its biomass supply
and renewable generation businesses.
Investment in biomass to increase capacity and reduce cost
As a part of the Group's key strategic objective of building a
long-term future for sustainable biomass, Drax remains focused on
opportunities to reduce its cost of biomass to a level which is
economic without subsidy in 2027.
These savings will be delivered through further optimisation of
existing biomass operations and greater utilisation of low-cost
wood residues; an expansion of the fuel envelope to incorporate
other renewable fuels and; a significant expansion of self-supply
capacity.
Drax is targeting five million tonnes of self-supply capacity by
2027 (1.5 million today, plus 0.35 million tonnes in development),
with greater scope for operational leverage and cost reduction.
Drax will continue to work with its current suppliers to develop
its portfolio.
At the 2019 half year results, Drax announced an investment in
low-cost capacity at its existing three sites in the US Gulf,
adding 350k tonnes of new capacity by 2021. The capital cost is in
the region of GBP50 million, enabling targeted fuel cost savings in
excess of GBP15/MWh on the additional capacity once
commissioned.
Drax is evaluating options to deliver an additional three
million tonnes of capacity. These options are expected to deliver
returns significantly in excess of the Group's cost of capital,
with strong cash flow generation and a fast payback.
These activities would enable Drax to develop an unsubsidised
biomass generation business by 2027, with the option to service
wood pellet demand in other markets - Europe, North America and
Asia.
Biomass sustainability is at the heart of the Group's activities
and Drax has implemented industry leading processes which support
this expansion, encourage forest growth and make a positive
contribution to climate change.
Options for gas generation
Drax continues to see flexible gas generation as an enabler of
greater renewable and low carbon generation, in addition to
supporting the development of hydrogen.
Any investment decision would reflect Drax's objective of
delivering earnings visibility and be underpinned by a 15-year
capacity agreement to support a low double-digit rate of return.
Drax would consider a range of funding options, including
partnerships, consistent with Drax's balance sheet objective of
around 2 x net debt to Adjusted EBITDA over time.
Capital allocation and dividend
Drax remains committed to the capital allocation policy
established in 2017.
Trading and operational performance
The performance of the assets acquired from Iberdrola in
December 2018 has been strong, particularly the pumped storage
business which has performed well, driven by the system support
market. Drax reiterates the Adjusted EBITDA(1) guidance provided at
the time of acquisition, of GBP90-GBP110 million in the 2019
financial year.
In July, Drax completed the refinancing of the acquisition
bridge facility used to acquire these assets. These facilities now
extend the Group's debt maturity profile to 2029, adding an ESG(2)
facility with a mechanism that adjusts the margin based on Drax's
carbon emissions against an annual benchmark. The Group's cost of
debt is now below four percent and below three percent on the new
facilities, reflecting the Group's reduced business risk. The Group
continues to identify opportunities to optimise its balance sheet
and cash flow.
During the summer, Drax completed major planned outages on two
biomass units. Following a delayed return to service, the plan is
to run all four ROC(3) units at high utilisation levels in the
fourth quarter of 2019.
The outlook for coal generation remains challenging and Drax
continues to monitor the situation with regards to future
operation, noting that all unabated UK coal generation must close
by 2025.
Following formal confirmation from the UK Government, Drax
expects the Capacity Market to be re-instated shortly, with full
retrospective payments made for the capacity provided. Capacity
payments due to Drax for 2019 and since the suspension of the
Capacity Market in 2018 are GBP75 million. Drax expects these to be
included in 2019 Adjusted EBITDA(1) , with cash settlement in
January 2020.
These factors underpin the Group's expectations for full year
Adjusted EBITDA(1) , which remain unchanged and around 2 x net debt
to Adjusted EBITDA(1) when adjusted to reflect cash payment of
retrospective capacity payments received in January 2020.
Capital Markets Day webcast and presentation material
The event will be webcast from 9.30am and the material made
available on the Group's website at the same time. Joining
instructions for the webcast and presentation are included in the
links below.
http://view-w.tv/3-1479-22819/en
https://www.drax.com/investors/capital-markets-day/
Notes:
(1) Earnings before interest, tax, depreciation, amortisation,
excluding the impact of exceptional items and certain
remeasurements.
(2) Environmental Social and Governance.
(3) Renewable Obligation Certificate.
Enquiries:
Drax Investor Relations: Mark Strafford
+44 (0) 1757 612 491
Media:
Drax External Communications: Matt Willey
+44 (0) 203 943 4306
Website: www.drax.com
END
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