29 February
2024
DRAX GROUP PLC (Symbol:
DRX)
FULL YEAR RESULTS FOR THE TWELVE
MONTHS ENDED 31 DECEMBER 2023
Strong financial performance and balance
sheet with additional returns to shareholders
Twelve months
ended 31 December
|
2023
|
2022
|
Key financial
performance measures
|
|
|
Adjusted EBITDA (excl. EGL)(1/2/3) (£
million)
|
1,214
|
731
|
Electricity Generator Levy (EGL)(3)
(£ million)
|
(205)
|
-
|
Adjusted EBITDA (incl. EGL)(1/2/3) (£
million)
|
1,009
|
731
|
Net debt(4) (£ million)
|
1,084
|
1,206
|
Net debt to Adjusted EBITDA (incl.
EGL)
|
1.1x
|
1.6x
|
Adjusted basic EPS(1)
(pence)
|
119.6
|
85.1
|
Dividend per share (pence)
|
23.1
|
21.0
|
Total financial
performance measures
|
|
|
Operating profit (£ million)
|
908
|
146
|
Profit before tax (£ million)
|
796
|
78
|
Will Gardiner,
CEO of Drax Group, said: "Drax performed
strongly in 2023 and we remained the single largest provider of
renewable power by output in the UK. We have created a business
which plays an essential role in supporting energy security,
providing dispatchable, renewable power for millions of homes and
businesses, particularly during periods of peak demand when there
is low wind and solar power.
"Policy support for our UK BECCS project
continues to progress and we remain in formal discussions with the
UK Government to ensure Drax Power Station can play a long-term
role in UK energy security, creating thousands of jobs during
construction and helping the country reach Net Zero.
"We have made further progress in our ambition
to be a world leader in carbon removals and have visibility of
high-quality, long-term earnings to 2042 and a strong balance sheet
which supports returns to shareholders and investment in growth,
both in the UK and internationally."
Financial
highlights - strong financial performance and returns to
shareholders
· Adj. EBITDA
growth driven by system support services, renewable generation, and
energy solutions (Customers)
· Strong liquidity
and balance sheet - £639 million of cash and committed facilities
at 31 December 2023
· New £258 million
term-loan facilities with 2027-2029 maturities (February
2024)
· Proposed final
dividend of 13.9 pence per share (2022: 12.6 pence per share) - 10%
increase
· £150 million
share buyback programme concluded(5)
Current
business and targets provide strong long-term foundation for
balance sheet, dividend and investment
· Flexible
generation and energy solutions portfolio - targeting post 2027
recurring Adj. EBITDA of >£250 million
· Pumped storage,
hydro, Open Cycle Gas Turbines (OCGTs) and energy
solutions
· Operating in
power, renewable, system support and capacity markets
· c.£580 million of
capacity payments to 2042 - existing and new capacity, including
Cruachan refurbishment
· Pellet production
- targeting post 2027 recurring Adj. EBITDA >£250 million from
own-use and third-party sales
· Biomass
generation - 2.6GW of flexible renewable generation
· Strong forward
hedges support firm cash flows (2024-2026) with additional value
from uncontracted power
· Expect long-term
value from bridging mechanism and BECCS
Financial
outlook
· Full year 2024
expectations for Adj. EBITDA in line with analysts' consensus
estimates(6)
· Expect to repay
Q4 2025 debt maturities through cash generation and refinancing
activities in 2024
· Outlook for 2025
Adj. EBITDA underpinned by a strong hedge book - >90% hedge of
power on RO units
Attractive
opportunities to invest for long-term growth linked to energy
transition and security of supply
· Options for c.£4
billion of growth investment by 2030, with additional investment
through 2030s
· UK BECCS -
targeting first unit (4Mt pa) by 2030 in line with UK ambition,
with second unit (4Mt pa) to follow - good progress over last 12
months
· UK Government
Biomass Strategy (August 2023) highlights important role for
BECCS
· Planning consent
granted for two units (January 2024)
· Consultation on
BECCS bridging mechanism (January - February 2024)
· MoU with Harbour
Energy and bp to assess options for transportation and storage of
CO2 (February 2024)
· Ongoing formal
discussions with UK Government regarding bridging mechanism and
BECCS
· Global BECCS -
targeting first project (3Mt pa) by 2030 - site selected in US
South, moving to FEED in 2024
· Targeting 600MW
expansion of Cruachan Power Station (pumped storage) by 2030,
planning consent granted
· Targeting 8Mt pa
of pellet production capacity by 2030, subject to clarity on UK
BECCS
· Ambition for the
development of over 20Mt pa of carbon removals through
2030s
Capital
allocation policy unchanged - continue to assess capital
requirements in line with the current policy
Sustainability
· Compliance with
TCFD reporting requirements
· Science Based
Targets initiative (SBTi) targets approved
· Forum for the
Future BECCS Done Well
report and publication of initial Drax response
National Audit
Office (NAO) and Ofgem
· NAO review of UK
Government's biomass strategy published (January 2024)
· Outlines
opportunities to develop standards consistent with existing
statements from UK Government
· Highlights UK
Government's commitment to biomass and its long-term role in
delivering UK targets
· Ofgem - annual
assessment of compliance with Renewables Obligation (RO) scheme
(May 2023) - "Good" rating
· Ofgem -
investigation of annual biomass profiling reporting under RO scheme
(ongoing)
Operational
and financial review
£
million
|
2023
|
2022
|
Adj. EBITDA
breakdown (incl. EGL)
|
1,009
|
731
|
Pellet
production
|
89
|
134
|
Pumped
storage and hydro
|
230
|
171
|
Biomass
generation
|
703
|
525
|
Energy
solutions (Customers)
|
72
|
26
|
Corporate, innovation, Global BECCS and other
(7/8)
|
(85)
|
(125)
|
Pellet Production - production and sales supporting UK generation
and sales to third parties
· Robust
performance in a challenging environment
· Progressing
development of new Longview pellet plant, and Aliceville expansion
complete
· Investment of
c.$300 million adding c.0.6Mt of new capacity
· Pipeline of new
third-party sales opportunities
· 0.5Mt contract to
Japan over five years, commenced in 2023
· Letter of Intent
for sale of up to 1Mt of biomass to European utility, for projects
incl. Sustainable Aviation Fuel
Generation - energy security with dispatchable renewable
generation and system support services
· Pumped storage
and hydro - strong system support and generation
performance
· Includes forward
sale of peak power (Q1 2023), system support services, renewables
and capacity payments
· Biomass
generation - strong system support and renewable generation
performance
· Period-on-period
reduction in output reflects two major planned outages
· Higher achieved
power price and value from system support, but higher biomass
costs
· As at 26 February
>£2.8 billion of forward power sales between 2024 and 2026 on RO
biomass, pumped storage and hydro generation assets - 22.3TWh at an
average price of £127.3/MWh(9/10)
· RO generation -
fully hedged in 2024 and >90% hedged in 2025
· A further 2.6TWh
of CfD generation contracted for 2024
Contracted power sales as at 26 February
2024
|
2024
|
2025
|
2026
|
|
|
|
|
Net RO, hydro and gas (TWh)(9)
|
10.8
|
9.3
|
2.2
|
-
Average achieved £ per MWh(10)
|
149.0
|
111.1
|
89.6
|
|
|
|
|
CfD (TWh)
|
2.6
|
|
|
|
|
|
|
Energy Solutions (Customers) -
renewable power sales and energy
services
· Strong Industrial
and Commercial (I&C) performance with 7% increase in power
sales - 15.8TWh (2022: 14.8TWh), stable margins on contracted sales
and lower balancing costs
· Growing value
from 100% renewable power products
· Development of
energy solutions business including system support services via
demand response, and electric vehicle services following
acquisition of BMM (August 2023)
· Impairment of
Opus Energy of £69 million, following transfer of renewables
activities to Drax Energy Solutions (along with £145 million of
Goodwill) and the previously announced ending of gas
sales
Other
financial information
Capital investment
· Capital
investment of £519 million (2022: £255 million)
· £187 million
maintenance and other, including two major planned outages on
biomass units
· £332 million
growth, including £189 million OCGTs and £76 million pellet plant
developments
· 2024 expected
capital investment of £410-450 million
· OCGTs - c.900MW -
three new-build sites, commissioning in H2 2024
· Continuing to
evaluate options for these projects
Cash and balance sheet
· Cash generated
from operations £1,111 million (after £155 million inflow of
collateral) (2022: £320 million, after £407 million outflow of
collateral)
· Net debt at 31
December 2023 of £1,084 million (31 December 2022: £1,206 million),
including cash and cash equivalents of £380 million (31 December
2022: £238 million)
· Good progress on
financing activities
· ESG term loan,
extended maturity to 2026 and reduced size to C$200 million
(November 2023)
· £144 million of
infrastructure facilities repaid (January 2024)
· Extension of £300
million revolving credit facility to 2026 (January 2024)
· New £258 million
term-loan facilities with 2027-2029 maturities (February
2024)
Footnotes:
(1) Financial performance measures prefixed with "Adjusted" are
stated after adjusting for exceptional items (including
impairment of non-current assets, proceeds from legal claims,
change in fair value of financial instruments and impact of tax
rate changes). Adj. EBITDA and EPS measures exclude earnings from
associates and amounts attributable to non-controlling
interests.
(2) Earnings before interest, tax, depreciation, amortisation,
other gains and losses and impairment of non-current assets,
excluding the impact of exceptional items and certain
remeasurements, earnings from associates and earnings attributable
to non-controlling interests.
(3) In December 2022, the UK Government confirmed the details of a
windfall tax - the Electricity Generator Levy (EGL) - on renewable
and low-carbon generators, implemented in 2023 and running to 31
March 2028. The EGL applies to the three biomass units operating
under the RO scheme and run-of-river hydro operations. It does not
apply to the Contract for Difference (CfD) biomass or pumped
storage hydro units. Following review, we have concluded that EGL
will be accounted for as a levy within Gross Profit and therefore
Adj. EBITDA. For 2023 we have presented Adj. EBITDA including and
excluding EGL for ease of comparison.
(4) Net debt is calculated by taking the Group's borrowings,
adjusting for the impact of associated hedging instruments, and
subtracting cash and cash equivalents. Net debt excludes the share
of borrowings and cash and cash equivalents attributable to
non-controlling interests.
Borrowings includes external
financial debt, such as loan notes, term loans and amounts drawn in
cash under revolving credit facilities, net of any deferred finance
costs.
(5) Following completion
of the share buyback programme Drax has c.384.7 million shares in
issue, with a further c.40.3 million held in treasury.
(6) As of 21 February
2024, analyst consensus for 2024 Adj. EBITDA (incl. EGL) was £968
million, with a range of £882 - 1,097million. The details of this
company collected consensus are displayed on the Group's
website.
https://www.drax.com/investors/announcements-events-reports/presentations/
(7) In 2023 a review of
the mechanism for corporate recharges was performed, leading to a
greater proportion being recharged to business units, primarily
Generation. The remaining £85 million in 2023 is comprised of £57
million for Global BECCS (2022: £14 million) and £28 million of
other corporate and innovation costs, including the development of
options for pumped storage expansion (2022: £24 million) and
intercompany eliminations. 2022 is not restated in the table, but
footnote 8, below includes a restated Adj. EBITDA breakdown for
2022 which includes the cost reallocation on the same basis as
2023.
(8) The table shows Adj.
EBITDA breakdown with 2022 restated inclusive of the cost
reallocation exercise described in footnote 7.
£
million
|
2023
|
2022
|
Adj.
EBITDA breakdown (incl. EGL)
|
1,009
|
731
|
Pellet
production
|
89
|
125
|
Pumped storage and
hydro
|
230
|
171
|
Biomass
generation
|
703
|
453
|
Energy supply
(Customers)
|
72
|
20
|
Corporate, innovation, Global
BECCS and other
|
(85)
|
(38)
|
(9) 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.
(10) Presented net of cost of
closing out gas positions at maturity and replacing with forward
power sales.
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 the Company'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.
Webcast Arrangements
Management will host a webcast presentation for
analysts and investors at 9:00am (GMT), Thursday 29
February 2024.
The presentation can be accessed remotely via a
live webcast link, as detailed below. After the meeting, the
webcast recording will be made available and access details of this
recording are also set out below.
A copy of the presentation will be
made available from 7:00am (GMT) on Thursday 29
February 2024 for download at: https://www.drax.com/investors/announcements-events-reports/presentations/
For further information, please
contact: rosie.corbett@fticonsulting.com
Chair's statement
Introduction
I am pleased to present my first Chair's
statement for the Group. I joined the Drax Board in August 2023 and
assumed the role of Chair in January 2024.
I have spent most of my executive career working
in power generation, primarily in North and South America.
What drew me to Drax, among other things, was the Group's
strong sense of purpose in enabling a zero carbon, lower cost
energy future.
Over the last 15 years Drax has transitioned
from a UK-based coal-fired power generator to an international
renewable energy company. With the development of carbon removal
opportunities utilising BECCS technology, I believe that Drax
is at the forefront of the energy transition, and I am excited
to be a part of that.
On a personal note, I am grateful to Philip Cox
for his support during my introduction to the Company and I would
like to thank him on behalf of the Board for his nine years of
service to the Group, as a Non-Executive Director and
Chair.
During his stewardship, the business
has completed its transition from coal to biomass power
generation, our Pellet Production business has grown, and we have
progressed opportunities for BECCS.
These actions have been driven by the Group's
continuing commitment to deliver our purpose and contribute to the
fight against climate change.
People and values
Since joining the Board, I have already spent
time with many colleagues across the Group. I have visited several
sites, and I look forward to visiting more during 2024 as I
continue to learn about Drax.
I have been impressed with the commitment and
enthusiasm of colleagues I have met, and the strong sense of pride
in what we are doing. This extends to making sure we do what is
right in the way we work, that we support one another, and that we
actively engage with stakeholders.
Sustainability is at the heart of the Group, and
we believe that achieving a positive economic, social, and
environmental impact helps us create sustainable long-term value.
We welcome healthy discussion and challenge about what we do,
and we acknowledge that there is always room for continued
improvement.
The Board remains committed to building a
supportive, diverse, and inclusive working environment where all
colleagues feel comfortable contributing to healthy debate to
achieve the best results. In our latest colleague engagement (My
Voice) survey we received positive outcomes on measures, such as
inclusion and safety, with an overall engagement score of 79%
(2022: 79%). I am also pleased to report that as at 1 January 2024,
56% of the Board were women.
Results and dividend
Adjusted(1)
EBITDA (excluding EGL) in 2023 was £1,214 million. This is
significantly higher than 2022 (£731 million), reflecting a strong
power generation and system support performance in the UK. The
balance sheet also remains strong, with Net debt of £1,084 million
(2022: £1,206 million), which is significantly below our target
ratio of around 2 times Net debt to Adjusted
EBITDA.
At the 2023 Half Year Results, we confirmed an
interim dividend of £36 million (9.2 pence per share). The Board
proposes to pay a final dividend in respect of 2023 of £53 million,
equivalent to 13.9 pence per share. This will make the full year
2023 dividend £89 million (23.1 pence per share) (2022: £84
million, 21.0 pence per share).
This represents a 10% increase on the dividend
per share paid in respect of 2022. It is also consistent with our
policy to pay a dividend that is sustainable and expected to
rise as the strategy delivers stable earnings, cash flows and
opportunities for growth.
The Group has a clear capital allocation policy.
In determining the rate of growth in dividends from one year
to the next, the Board will take account of cash flows from
contracted income, the less predictable cash flows from the Group's
commodity-linked revenue streams, and future investment
opportunities. If there is a build-up of capital, the Board will
consider the most appropriate mechanism to return this to
shareholders. In line with this policy, between May 2023 and
September 2023 the Group conducted a £150 million share buyback
programme, purchasing over 26 million shares.
Summary
I would like to thank all colleagues for
their hard work, dedication, and expertise in helping us
deliver our purpose and our financial results.
In 2023, we used our generation assets and our
supply chain to provide reliable and flexible power;
we enhanced security of supply in the UK; and we continued
to deliver strong financial performance, which resulted
in growing dividends to our shareholders.
At the same time, we have made good progress
with our strategic objectives. Our biomass growth strategy is
clear and underpins our plans for biomass sales, opportunities
for BECCS, and renewable power generation.
Through these complementary opportunities, we
believe we can deliver sustainable long-term value to our
stakeholders as we realise our purpose of enabling a zero carbon,
lower cost energy future and become a carbon negative company,
removing more carbon from the atmosphere than we produce across our
direct operations.
(1) Adjusted financial
performance measures are described in note 4.
Andrea
Bertone,
Chair
28 February 2024
CEO's Review
The global geopolitical environment continued to
be challenging in 2023, with the ongoing war in Ukraine, as
well as the conflict in the Middle East. Nevertheless, markets
stabilised and prices came down for many commodities, as Europe, in
particular, adapted to the new reality and limits on imports of gas
from Russia. Despite these challenges, the world continues to drive
towards decarbonisation, with an agreement at COP28 to commit to
transition away from burning fossil fuels.
These trends also apply to the UK, where gas and
power prices have come down significantly. Energy security
continues to be a key focus and, despite all the challenges,
the UK looks to continue delivering its net zero
targets.
As many countries seek to decarbonise in a
cost-effective manner, while protecting energy security and
delivering a Just Transition, our purpose - to enable a zero
carbon, lower cost energy future - is well aligned with these
competing priorities.
The world must act now to address the climate
crisis if we are to limit global warming to 1.5oC above pre-industrial levels. We need more
renewable energy, and more flexible energy systems to make
the best use of intermittent renewables. Crucially, we also
need carbon removal technologies, like BECCS, to remove carbon from
the atmosphere.
We believe that the use of sustainable biomass
and BECCS, alongside flexible, renewable generation and energy
systems can make an important contribution - decarbonising and
protecting energy security, whilst stimulating economies
and minimising the cost.
These benefits will only be possible with the
right biomass - biomass that is sourced sustainably. At Drax we are
committed to using biomass that can deliver positive outcomes for
the climate, nature, and people. We continue to put in place
policies, procedures, and controls to support this, and we are
committed to working in partnership with stakeholders in the
communities where we operate, as well as with industry, scientists,
and civil society organisations to achieve our
ambitions.
Against this backdrop we are continuing to
execute our strategy for carbon removals from BECCS in the US and
UK by 2030. In addition we are planning to expand
our pumped storage hydro business, and biomass supply
chain.
Through our strategy we are creating
opportunities for growth and attractive returns while aligning to
global decarbonisation efforts. Investments remain subject to the
right frameworks from governments and regulators, underpinned by
high-quality earnings and cash flows from our core business. We are
delivering for shareholders today, paying a sustainable and
growing dividend and additional returns via a £150 million share
buyback programme conducted in 2023, in line with our capital
allocation policy.
Safety
Safety remains a primary focus and, in 2023, we
achieved an improvement in performance with our Total Recordable
Incident Rate of 0.38 (2022: 0.44). As we explained in
our 2022 Annual Report, we widened the scope of reporting to
include contractor incidents and saw improvements in the recording
of incidents in our pellet operations.
We are committed to a strong safety culture
across the Group and remain focused on improving performance.
We implemented Health, Safety and Environmental (HSE)
improvement plans across our businesses in 2023, including
investment in training, human resource, and capital projects. We
also strengthened our HSE reporting culture by encouraging all
colleagues to provide feedback when they identified any hazards or
near misses. From this, we were able to implement action plans to
prevent reoccurrence. Our See it, Stop it, Report it campaign
was run Group-wide.
Chair
At the start of 2024 Andrea Bertone became the
new Chair of the Drax Board. With her extensive experience of the
energy sector in the Americas, Andrea's stewardship will be
valuable as we develop our growing global business.
Andrea replaces Philip Cox, who dedicated nine
years of service as a Non-Executive Director and Chair. Philip was
Chair throughout my time at Drax and I am grateful for his calm and
assured stewardship of the business during a period of significant
change and growth. Thank you, Philip.
Summary of 2023
In 2023 we delivered a strong financial and
operational performance. We did so while continuing to play an
important role supporting energy security in the UK through the
provision of dispatchable, renewable generation for millions of
homes and businesses.
Adjusted(1)
EBITDA (excluding EGL) of £1,214 million, represents a 66% increase
on 2022 (£731 million). This reflects a very strong system support
and renewable power generation performance across the portfolio as
well as growth in our Customers business.
Biomass operations in Generation and Pellet
Production remain at the heart of the Group, with combined
Adjusted EBITDA (excluding EGL) of £974 million in 2023 (2022:
£659 million).
Flexible generation and energy supply (pumped
storage, hydro and Customers) delivered Adjusted EBITDA (excluding
EGL) of £325 million (2022: £197 million).
In addition, capital projects, innovation, and
other costs give Consolidated Adjusted EBITDA (excluding EGL) of
£1,214 million (2022: £731 million).
Our balance sheet is strong, with total cash and
committed facilities of £639 million and Net debt of £1,084
million. This means that Net debt to Adjusted EBITDA (excluding
EGL) was less than 1 times - significantly below the Group's
target of around 2 times.
In line with our policy to pay a sustainable and
growing dividend, the Group plans to pay a total dividend for 2023
of 23.1 pence per share. This is an increase of 10% on 2022 (21.0
pence per share), which in addition to the £150 million share
buyback programme, represents total returns to shareholders of £236
million.
The Group's capital allocation policy remains
unchanged and Drax continues to assess options for capital
investment, further returns to shareholders, and the repurchase or
retirement of debt.
(1) Adjusted financial
performance measures are described in note 4.
Electricity Generator Levy
As a consequence of higher gas prices,
the UK Government introduced the EGL,
a levy on renewable generation. The charge incurred in
2023 was £205 million.
Ofgem and the National Audit Office
In May 2023, Ofgem (via its audit contractor,
Black & Veatch), completed an annual assessment of Drax
Power Limited's compliance with the Renewables Obligation (RO)
scheme, with Drax receiving a "Good" rating (the highest
of four available ratings).
Separately, also in May 2023, Ofgem announced
the opening of an investigation into Drax Power Limited's annual
biomass profiling reporting under the RO scheme. In its opening
statement, Ofgem confirmed that it had not established any
non-compliance that would affect the issuance of Renewables
Obligation Certificates (ROCs). Drax awaits the conclusion of this
investigation.
In September 2023, the National Audit Office
(NAO) announced a review of the UK Government's biomass strategy.
In January 2024, the NAO concluded its process, acknowledging the
important role that sustainably sourced biomass has to play in the
UK Government's plans for net zero, and recognising the importance
of sustainability reporting and criteria being robust and fit for
purpose.
Operational performance
Pellet Production
Adjusted EBITDA of £89 million (2022: £134
million) reflects lower levels of production, an increased
proportion of sales to third parties under legacy contracts,
and higher operating expenditure due to maintenance costs arising
from unplanned outages and increased staff costs.
Against the backdrop of a more
challenging operational and market environment, we
believe that this was a robust performance, with opportunities to
improve profitability in our Pellets business.
We also continued to progress development
opportunities with the expansion of Aliceville (Alabama) and
a new-build pellet plant at Longview (Washington State) that
includes the development of a new co-located port
facility.
Taken together, existing operations and
developments will give Drax a network of 18 pellet plants (around
5.4Mt of capacity), with access to five deep-water ports in
the US South and West Coast of North America.
The pellet supply market experienced a
challenging year but, as a vertically integrated producer, user,
buyer, and seller of biomass, we operate a differentiated biomass
model from our peers and see the current global biomass market as
representing a favourable balance of risks and opportunities for
the Group.
In the short term, we are focused on managing
risks to our supply chain, while at the same time remaining alert
to the opportunities this may create. Longer term, we are
fundamentally positive on the outlook for biomass demand and expect
this to grow, as sustainable woody biomass is increasingly used for
BECCS and carbon removals, as well as for next-generation
sustainable aviation fuel (SAF).
The Group currently has over 17Mt of long-term
biomass sales contracted to third parties in Asia and Europe
extending to the mid-2030s.
In November 2023, we commenced supply of a new
0.5Mt five-year contract with a Japanese customer, and in December
agreed a Letter of Intent for the sale of up to 1Mt of biomass
to a major European utility, including a biofuel project which is
targeting a final investment decision during 2025.
We believe that these developments demonstrate
the growing demand for biomass pellets in Asia and Europe and its
wider application in the energy transition.
Generation
Adjusted EBITDA (excluding EGL) of £1,138
million was an increase of 64% on 2022 (£696 million). This
reflects a strong system support and renewable power generation
performance across the portfolio - providing high levels of
dispatchable renewable and low-carbon power, and system support
services - offsetting incrementally higher biomass
costs.
Our portfolio generated over 4% of the UK's
electricity between October 2022 and September 2023 (the most
recent period for which data is available). We also generated 8% of
the UK's renewable electricity over the same period, making Drax
the largest renewable generator by output. In addition, during 2023
our assets produced on average 16% of the UK's renewables at times
of peak demand and up to 67% on certain days. This underlines the
important role that Drax plays in security of supply in the
UK.
The current operating environment highlights the
importance of continued investment to ensure good operational
performance and availability. As a part of this investment
programme, we completed two major planned outages at Drax Power
Station in July and November 2023.
Biomass
The Group has a robust and diversified global
supply chain. It consists of both third-party suppliers and around
5Mt of owned production capacity across the Group's operational
facilities in the US and Canada. This diversification provides a
high level of operational redundancy designed to mitigate potential
disruptions at supplier level.
In the UK, Drax utilises dedicated port
facilities at Hull, Immingham, Tyne and Liverpool, with annual
throughput capacity and biomass rail sets providing supply chain
capacity significantly in excess of the Group's typical annual
biomass usage.
Drax Power Station has around 300,000 tonnes of
onsite biomass storage capacity. Taken together with volumes
throughout the supply chain, the Group currently has visibility of
around one million tonnes of biomass in inventories. This adds to
the resilience and security of the UK power market over the winter
period. Around 30% of the UK's gas storage sites are required to
produce the equivalent amount of electricity that the Drax
inventory supports.
Most of the biomass we use is under long-term
contracts. However, as we previously reported during 2022, upstream
inflationary pressures in certain aspects of our supply chain
led to some cost increases in 2023, in addition to an increase in
labour costs at Drax Power Station adding to the fixed cost
base of the plant.
Pumped Storage and Hydro
Cruachan pumped storage and the Lanark and
Galloway hydro schemes delivered a very strong performance in
2023. Adjusted EBITDA (excluding EGL) of £253 million is
significantly above 2022 (£171 million) and historical levels of
Adjusted EBITDA since acquisition, which have been in the region of
£70 million.
The primary driver of this strong performance
was a high level of activity at Cruachan. The plant delivered
system support services via the short-term balancing mechanism,
ancillary services and peak off-peak power generation. As forward
power prices have reduced, we expect a lower level of Adjusted
EBITDA in 2024, although well above the historical
performance. Cruachan and elements of our run-of-river hydro
schemes also operate in the Capacity Market.
While power prices are unpredictable,
we believe that increased reliance on intermittent renewables
in the UK system will continue to drive further demand for
dispatchable power and system support services. This creates
long-term enduring earnings opportunities for assets like
Cruachan.
Coal
At the request of the UK Government, during the
winter contract period of 2022-2023 we kept the remaining two coal
units at Drax Power Station available to provide a "winter
contingency" to support the UK power system. At the end of March
2023 we closed these units and decommissioning is
underway.
Customers
Our Customers business performed well in 2023
with Adjusted EBITDA of £72 million (2022: £26 million). This
headline performance benefited from a reduction in the
volatility seen in the previous period, which we do not
expect to recur to the same extent in 2024. The Industrial and
Commercial (I&C) business performance was underpinned by stable
margins on higher contracted power prices and elevated value from
renewable products. Conversely, our Opus business declined because
of the exit from gas supply and lower customer numbers.
Over the past three years, we have restructured the Customers
business, streamlining operations. These changes have supported the
development of our core I&C supply operations, which represents
the majority of earnings in our Customers business.
Setting aside one-off benefits, 2023
was a strong underlying performance reflecting the
high-quality customer base and the increased value of renewable
power underpinned by Renewable Energy Guarantees of Origin (REGO)
certificates. With a growing demand for 100% renewable power supply
to customers, prices for these certificates have increased and our
Customers business provides a means to realise greater value from
our large scale renewable generation - a benefit of our integrated
value chain.
Alongside supplying renewable energy,
we see an important role in supporting
the decarbonisation of I&C businesses through the
provision of additional products - including asset optimisation,
electric vehicle (EV) services, and carbon offset certificates -
which we believe could evolve in the future to the provision of
Drax carbon removals. Reflecting this potential, in August 2023
Drax Energy Solutions acquired BMM Energy Solutions (BMM), an
installer of EV charge points. The acquisition enhances our
end-to-end EV charging proposition, as part of the Group's
commitment to support customers in achieving their net zero
ambitions.
Strategy
Through 2023 we continued to progress our
strategy, which is designed to realise our purpose of enabling a
zero carbon, lower cost energy future and our ambition to be a
carbon negative company. It includes three complementary strategic
pillars, closely aligned with global energy policies: (1) to be a
global leader in carbon removals; (2) to be a global leader in
sustainable biomass pellets; and (3) to be a UK leader in
dispatchable, renewable generation.
A
UK leader in dispatchable, renewable generation
The UK's plans to achieve net zero by 2050 will
require the electrification of sectors such as heating and
transport systems, resulting in a significant increase in demand
for electricity. We believe that intermittent renewable and
inflexible low-carbon energy sources - wind, solar and nuclear -
could help meet this demand. However, this will only be possible if
other power sources can provide the dispatchable power and
non-generation system support services required to ensure security
of supply and to limit the cost to the consumer.
With demand for these services growing, and with
fewer assets capable of doing this as older thermal plants are
retired, this is a challenge for the power system but also an
opportunity for the Group.
Biomass, pumped storage and hydro all have an
important role to play and we are looking at ways to supplement the
portfolio and create long-term value for the Group and our
shareholders.
We are continuing to develop options for
Cruachan, including a 600MW expansion. The location, flexibility
and range of services Cruachan can provide makes it strategically
important to the UK power system and an enduring source of
long-term earnings and cash flows linked to the UK's energy
transition. In July 2023, the Scottish Government awarded planning
consent for the expansion and, subject to the right investment
framework, we are targeting a final investment decision to be taken
in 2025.
In this regard, in January 2024 the UK
Government launched a consultation on an investment mechanism to
support the development of new long-duration storage projects, like
pumped storage, with a "minded to" preference for a "cap and floor"
mechanism. We continue to target commercial operations by
2030.
We are continuing to construct three new-build
Open Cycle Gas Turbine (OCGT) projects at two sites in England and
one in Wales, targeting commissioning during 2024. The three plants
will provide combined capacity of around 900MW and be remunerated
under 15-year Capacity Market agreements (2024-2039), in addition
to peak power generation and system support services. The units are
expected to enter service in the second half of 2024.
These assets are highly flexible and able to
provide the grid with a range of services, which we believe will
become increasingly important as the UK energy system becomes
progressively more reliant on wind. Whilst gas is not renewable, we
expect the units to operate on a limited basis at times of system
stress, resulting in a low-carbon footprint.
We also continue to assess options for these
assets, including their potential sale.
A
global leader in carbon removals
Our ambition is to develop carbon removals
globally, and to deploy BECCS in the UK and US by 2030. The
Intergovernmental Panel on Climate Change (IPCC) is the
world-leading authority on climate science. Its research states
that Carbon Dioxide Removal (CDR) methods, including BECCS, are
needed to mitigate residual emissions and keep the world on a
pathway to limit global warming to 1.5oC.
The illustrative mitigation pathways assessed
by the IPCC use significant volumes of carbon removals, including
BECCS, as a key tool for mitigating climate change. The IPCC has
assessed that globally up to 9.5 billion tonnes of CDRs from BECCS
could be required per year by 2050.
The Group is developing a pipeline of projects
that could contribute towards this total, with our ambition for
20Mt of carbon removals. We are progressing plans to develop 7Mt of
carbon removals through BECCS by 2030. Of this, 3Mt would be in the
US and 4Mt in the UK.
US
BECCS
The US represents an attractive investment
environment for large-scale carbon removals. It combines good
access to fibre and carbon storage, thereby shortening our supply
chain, in addition to a supportive investment horizon provided by
the Inflation Reduction Act and associated schemes.
We have a first site selected and progressing
through pre-FEED (front-end engineering design). The site, located
in the US South, would be a new-build BECCS power plant capable of
producing around 2TWh per annum of renewable electricity from
sustainable biomass and capturing around 3Mt of carbon dioxide per
annum. Total investment is estimated to be in the region of $2
billion with a target final investment decision (FID) in 2026 and
commercial operation by 2030. Additional projects could be brought
onstream through the 2030s.
The capital cost of the project reflects the
construction of new-build power generation capacity as well as
carbon capture and storage (CCS) systems.
The design of the plant enables a wider choice
of sustainable biomass materials, including non-pelletised
material, such as woodchips. Drax aims to locate new plants in
regions that are closer to sources of sustainable biomass and
carbon transportation and storage systems. This is expected to
significantly reduce the operating cost of a new-build BECCS plant
compared to a retrofit, as well as reducing carbon emissions in the
supply chain. However, we may need to source from further afield to
ensure consistent access to the volumes and quality of fibre
required.
Investment in the first new-build BECCS site and
subsequent developments through the 2030s will be subject to
long-term CDR offtake agreements with corporate counterparties, and
power purchase agreements for 24/7 renewable power, with
discussions with prospective counterparties underway.
We are allocating resources across all of these
opportunities and in August 2023 we opened a new Global BECCS
headquarters in Houston, Texas. We now have over 100 employees
working on our Global BECCS programme in the UK and North
America.
We are also continuing to assess options for
BECCS projects using existing non-Drax assets, in addition to
screening other regions for BECCS potential, including Europe and
Australasia.
UK
BECCS
We continue to develop an option for BECCS at
Drax Power Station, with plans to add post-combustion carbon
capture to two of the existing biomass units that use sustainable
biomass and technology from our technology partner, Mitsubishi
Heavy Industries (MHI). The captured carbon will be transported and
stored under the North Sea.
In August 2023, the UK Government published a
Biomass Strategy which set out its position on the use of biomass
in the UK's plans for delivering net zero. This outlined the
potential "extraordinary" role that biomass can play across the
economy in power, heating and transport. This includes a priority
role for BECCS, which is seen as critical for meeting net zero
plans due to its ability to provide large-scale CDRs.
In December 2023, the UK Government confirmed
further policy support for the development of carbon capture and
storage in the UK, including an update on the Track-1
expansion and Track-2 processes, having previously set out an
indicative timetable for selection of successful projects during
2024, moving onto bilateral discussions regarding the level of
Government support. This support is expected to take the form of a
15-year Contract for Difference (CfD) with a dual payment mechanism
linked to both low-carbon electricity and negative
emissions.
Both options are potentially available to Drax
and the timing for their deployment is consistent with our
expectations. This could see us take a FID on a first Drax Power
Station BECCS unit in 2026 and commence BECCS operations by 2030.
In January 2024, the project received planning approval which
represents another milestone in the development of the
project.
Bridging mechanism
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. We participated in the consultation and we now await
Government's response.
We believe that a bridging mechanism offers the
most effective way to build a link between the end of the current
renewable schemes in 2027 and BECCS operations. This could provide
multi-year certainty allowing Drax to secure long-term biomass
supplies and continue to support energy security via flexible
and reliable renewable biomass operations in advance of
BECCS.
Innovation
We continue to invest in innovation in biomass
and BECCS. In 2023, we commissioned a small sugar extraction plant
and we remain an equity shareholder in C-Capture Limited, which
is developing a solvent technology that could be used for
BECCS and other applications.
A
global leader in sustainable biomass pellets
We believe that the global market for
sustainable biomass will grow significantly, creating international
opportunities. These will include sales to third parties, BECCS,
generation and other long-term uses of biomass, including SAF.
Reflecting that growth, we are developing a pipeline of new
contracts for biomass supply into new markets and uses to
supplement our existing long-term third-party supply
arrangements.
To support this expected growth in demand for
biomass products, we are targeting 8Mt of pellet production
capacity. This will require over 2Mt of new biomass pellet
production capacity to supplement existing capacity and
developments.
Drax is differentiated as a major producer,
supplier and user of biomass, active in all areas of the supply
chain, with long-term relationships and over 20 years of experience
in biomass operations. We can deploy the Group's innovation in
coal-to-biomass engineering, together with the development of a
leading position in carbon removals, alongside our large, reliable
and sustainable supply chain. In doing so, we will form
long-term partnerships to support customers with their
decarbonisation journeys.
Sustainability
As a purpose-led organisation, as we grow,
positive outcomes for climate, nature and people should grow too.
We believe the more we do, the more atmospheric carbon could be
reduced and removed. Our operations can help sustain more working
forests, and provide more jobs and opportunities in communities
where we source and operate.
We must continue to meet all sustainability
expectations of us, promote continuous improvement, and be seen to
do so.
Working in partnership with industry,
communities, scientists, and civil society organisations will be
vital to achieving our ambitions. We will look to work
constructively with them to help us deliver improvements and
perpetuate positive outcomes for the climate, nature, and
people.
Engaging with stakeholders is an important
element. In 2022, we commissioned Jonathon Porritt CBE (a leading
environmental campaigner and co-founder of Forum for the Future) to
convene a High-Level Panel to conduct an independent inquiry
into how to implement BECCS in a way that delivers positive
outcomes for the climate, nature and people. The Panel reported
back in November 2022, setting out the conditions for BECCS to be
done well, and in July 2023 we published our response.
In 2023 the Science Based Targets initiative
(SBTi) also validated that our carbon reduction targets are in line
with the actions required to follow a 1.5oC pathway. This adds further rigour to
our plans to continue to reduce carbon emissions within the
Group.
We are a supporter of the Task Force on
Climate-related Financial Disclosures (TCFD). We are also a
Taskforce on Nature-related Financial Disclosures (TNFD) adopter,
and in 2023 we participated in a TNFD pilot project for
our pumped storage and hydro assets. We are also a
signatory to the UN Global Compact (UNGC) and we are committed to
promoting the UNGC principles concerning respect for human rights,
labour rights, the environment, and anti-corruption.
Outlook
We are continuing to play an important role in
supporting energy security in the UK. We are using our supply chain
and dispatchable, renewable generation portfolio to provide large
volumes of reliable renewable power and system support services. In
this context the strategic importance of our portfolio and its
contribution to the UK power system is clear. We believe we will
have a long-term role to play as the UK manages the need
to decarbonise whilst maintaining
energy security.
Our long-term focus remains on progressing our
strategy and our ambition is to become a carbon negative company,
underpinned by the development of BECCS. The potential for the
growth in CDRs, and the opportunity this could afford BECCS in
the UK and our plans for North America, are both
significant. We anticipate making further progress on these
options during 2024.
Through these strategic objectives,
we expect to create opportunities for long-term international
growth, underpinned by strong cash generation and attractive
returns for shareholders, and to deliver value for our
stakeholders.
Will
Gardiner,
CEO
28 February 2024
Financial Review
Financial
highlights
Adjusted
EBITDA excluding EGL
£1,214m
(2022: £731m)
|
|
Adjusted
operating profit
£782m
(2022: £469m)
|
|
Total
operating profit
£908m
(2022: £146m)
|
|
Cash generated
from operations
£1,111m
(2022: £320m)
|
Adjusted basic
earnings per share
119.6 pence
(2022: 85.1 pence)
|
|
Total basic
earnings
per share
142.8 pence
(2022: 21.3 pence)
|
|
Net debt to
Adjusted EBITDA excluding EGL
0.9 times
(2022: 1.6 times)
|
|
Total
dividend
per share
23.1 pence
(2022: 21.0 pence)
|
|
|
Year end
31 December
|
|
|
2023
|
2022
|
Financial performance (£m)
|
Total gross
profit
|
1,954
|
1,023
|
Operating expenses
|
(712)
|
(543)
|
Impairment losses on financial
assets
|
(33)
|
(48)
|
Depreciation and amortisation
|
(225)
|
(239)
|
Impairment of non-current assets
|
(71)
|
(42)
|
Other losses
|
(5)
|
(6)
|
Total
operating profit
|
908
|
146
|
Exceptional costs and certain
remeasurements
|
(127)
|
323
|
Adjusted
operating profit
|
782
|
469
|
Adjusted depreciation, amortisation, asset
obsolescence charges and losses on disposal of fixed
assets
|
228
|
261
|
Adjusted
EBITDA including EGL
|
1,009
|
731
|
EGL charge
|
205
|
-
|
Adjusted
EBITDA excluding EGL
|
1,214
|
731
|
Capital expenditure (£m)
|
Capital expenditure for the year
|
519
|
255
|
Cash and net debt
(£m unless otherwise stated)
|
Cash generated from operations
|
1,111
|
320
|
Net debt
|
1,084
|
1,206
|
Net debt to
Adjusted EBITDA excluding EGL (times)
|
0.9
|
1.6
|
Cash and committed facilities
|
639
|
698
|
Earnings (pence per share)
|
Adjusted basic
|
119.6
|
85.1
|
Total basic
|
142.8
|
21.3
|
Distributions (pence per share)
|
Interim dividend
|
9.2
|
8.4
|
Proposed final dividend
|
13.9
|
12.6
|
|
Total
dividend
|
23.1
|
21.0
|
We calculate Adjusted financial
performance measures, which exclude income statement volatility
from derivative financial instruments and the impact of exceptional
items. This allows management and stakeholders to better
compare the performance of the Group between the current and
previous year without the effects of this volatility and one off or
non-operational items. Alternative performance measures are
described more fully in the APMs glossary, with a reconciliation to
their statutory equivalents, in note 4. Throughout this document we
distinguish between Adjusted measures and Total measures, which are
calculated in accordance with International Financial
Reporting Standards (IFRS). Tables in this financial review may not
add down/across due to rounding.
(1) In December 2022,
the UK Government confirmed the details of the EGL, which applies
to the Group's biomass units operating under the Renewables
Obligation (RO) scheme and run-of-river hydro assets, but not the
CfD unit at Drax Power Station or Cruachan. The legislation
bringing this levy into force was enacted during July 2023
and extends to March 2028. EGL is payable at 45% on revenues
above an index-linked benchmark level, after deducting an allowance
for increased fuel costs. As EGL has been assessed as a levy for
accounting purposes, rather than a tax, it is recognised within
Adjusted results within gross profit.
Introduction
Adjusted EBITDA (excluding the Electricity
Generator Levy(1) (EGL)) of
£1,214 million was an increase of 66% compared to the prior
year (2022: £731 million). Including EGL of £205 million, Adjusted
EBITDA rose by 38%. The EGL was implemented with effect from 1
January 2023 and all arose in the Generation segment. For
Consolidated results and Generation we state whether Adjusted
EBITDA includes EGL or not, for other segments we do not, as EGL is
not applicable to them.
Cash generated from operations of £1,111 million
has risen by 247% (2022: £320 million). Operating cash flows before
movements in working capital were around 100% of Adjusted EBITDA
including EGL in 2023 and 2022. For more details of movements in
working capital please see note 7. Net debt was £1,084 million (31
December 2022: £1,206 million), with a ratio of Net debt:
Adjusted EBITDA excluding EGL of 0.9 times (31 December 2022:
1.6 times) - significantly below the Group's long-term target of
around 2 times.
Total operating profit of £908 million
represents a significant increase on 2022 (2022: £146 million). An
increase in Total gross profit of £931 million was partially
offset by an increase of £169 million in operating and
administrative expenses, of which £45 million is attributable to
staff costs, as we continue to invest in future growth.
Maintenance costs also increased as there were two major planned
outages at Drax Power Station, and the Pellet Production business
incurred costs, as described in the Financial performance
section.
Total capital investment was £519 million (2022:
£255 million). Of this, £332 million related to growth
expenditure, £143 million maintenance projects and £44 million
health, safety, environment and IT. The £332 million of growth
expenditure (2022: £127 million) includes £189 million in respect
of development of three OCGTs and £45 million in respect of our
Longview pellet plant development.
The proposed cumulative ordinary dividend for
2023 of 23.1 pence per share represents a 10% increase on 2022. The
Group is committed to paying a sustainable and growing
dividend in line with its long-standing capital allocation policy.
On 15 September 2023 the Group completed a £150 million share
buyback, purchasing 26.5 million shares for a net £149 million
between 18 May and 15 September 2023.
Financial performance
Adjusted
EBITDA and EGL by segment
Pellet Production's Adjusted EBITDA of £89
million represents a 34% million reduction on 2022 (£134
million). The Pellet Production business produced 3.8Mt (2022:
3.9Mt) and shipped 4.6Mt (2022: 4.7Mt) of pellets. Of the 4.6Mt
shipped, 2.5Mt were to Drax Power Station (2022: 2.2Mt) to support
UK security of energy supply. Sales to third parties are typically
at a lower gross margin than internal shipments as contract pricing
was established prior to the impacts of recent inflationary trends,
such as an increase in staff costs, whereas internal transfer
pricing is updated annually to incorporate such changes. We would
expect pricing to improve as we start to supply a greater
proportion of newer sales contracts.
In addition to the impact of the sales mix, the
business incurred higher repairs and maintenance costs due to both
planned outages and a higher than expected level of unplanned
outages. These unplanned outages contributed to the lower than
expected level of production, in addition to the impacts of wild
fires in Canada, weather damage to our port facility in Baton Rouge
and industrial action at the ports of Vancouver and
Prince Rupert, BC.
Notwithstanding cost increases in 2023, the
Group sees opportunities to reduce costs and improve profitability
in Pellet Production.
Generation's Adjusted EBITDA (excluding EGL) of
£1,138 million is a 64% increase on 2022 (£696 million).
Including EGL, Adjusted EBITDA rose by 34% to £933 million. This
reflects a strong system support and renewable power generation
performance across the portfolio - providing high levels of
dispatchable, renewable and low-carbon power and system support
services - offsetting incrementally higher biomass costs and an
increased allocation of Innovation, capital projects and other
costs.
Our Cruachan pumped storage power station, as
well as the run-of-river hydro assets at Lanark and Galloway,
continued to perform strongly. Combined with the Daldowie energy
from waste plant they contributed Adjusted EBITDA (excluding EGL)
of £253 million (2022: £171 million) and £230 million of
Adjusted EBITDA including EGL. This was achieved through higher
levels of generation and achieved power prices, in addition to the
provision of support services via the short-term balancing
mechanism, ancillary services and participation in the Capacity
Market.
During 2023 a review of the mechanism for
corporate recharges was performed, leading to an increase in the
amount of Innovation, capital projects and other costs recharged to
the reportable segments, with the largest increase seen in
Generation. Following this change the remaining Innovation, capital
projects and other costs constitute development expenditure on
projects which have not yet hit the capitalisation criteria and
intra-group eliminations. Global BECCS is an example of such a
development cost, with an increase in costs of £43 million in 2023.
Further information on the mechanism is included in note
1.
Our Customers business generated £72 million of
Adjusted EBITDA (2022: £26 million). This increase reflects a
strong performance in the I&C business and was driven by
increased contracted power prices with consistent margin
percentages and increased value from renewable products, as well as
benefits from reductions in marked prices and volatility during
2023, which are not expected to recur going forwards.
A non-cash impairment of £69 million was
recognised related to the Opus Energy part of our Customers
business, as the exit from gas supply and changing customer
behaviours led to a reduction in forecast cash flows for this
element of the Group. Further details are provided in the Total
operating profit section below.
Bad debt charges, net of credits, reduced to £33
million (2022: £48 million). Before recognition of credits, the bad
debt charge represents 1.0% of Customers revenues (2022: 1.4%), the
reduction being because of revenue mix moving towards higher credit
quality customers.
Innovation, capital projects and other costs of
£85 million shows a 31% decrease on 2022 (£124 million). However,
before the change in methodology for recharges described
previously, costs increased by 49%. The increase predominantly
reflects higher development expenditure on major projects which
have not yet reached the stage of capitalisation, including Global
BECCS and Cruachan II. Appropriate UK BECCS costs continue to be
capitalised, as described in the 'Capital expenditure'
section.
Total
operating profit
Total operating profit of £908 million is
an increase of £762 million on 2022 (£146 million), with the
increase in Total gross profit of £931 million offset by
an increase in Total operating and administrative expenses of
£169 million reflecting the factors described above. Total
operating profit also includes an additional benefit of £200
million from net adjustments for certain remeasurements (2022: £298
million net loss) that are not included in Adjusted
EBITDA.
The main drivers behind the certain
remeasurements credit was an increased value of gas-for-power
trades because of falling gas prices and a reduction in carbon
prices during the year. Net exceptional costs of £74 million were
recognised during 2023 (2022: £25 million). Of this, a £69 million
debit related to the impairment of non-current assets related to
the Opus Energy business within Customers, the largest proportion
being an impairment of customer-related assets of £31 million and
goodwill of £15 million. There was also a credit of £14 million
related to an agreed settlement with a vendor in relation to a
billing system where development was halted in a previous period.
Finally, a cost of £18 million was recognised with respect to
contingent consideration on the historical CCGT disposal. Further
detail on these transactions can be seen in note 4.
Depreciation and amortisation decreased by 6% to
£225 million (2022: £239 million), with the main decrease being in
the Pellet Production business.
Profit after
tax and Earnings per share
Net finance costs for 2023 were £112 million
(2022: £68 million). Changes in interest rates led to an increase
in the interest charge of £24 million. This was partially offset by
a £9 million increase in interest receivable. Foreign exchange
losses in the period were £9 million (2022: £11 million gain).
The remaining increase is attributable to levels of utilisation and
interest on new facilities.
The effective Adjusted tax rate of 29% (2022:
17%) is above the standard rate of corporation tax in the UK. The
impact of EGL costs, which are not allowable for corporation tax
deductions, increased the effective rate by 7%. This is partially
offset by UK incentives such as patent box scheme and R&D tax
credits. This figure includes the impact of tax rates prevailing in
overseas jurisdictions. The extension of the full expensing of
capital expenditure, as announced in the UK Government's 2023
Autumn Statement, makes permanent the cash tax timing benefit
for capital spend.
Adjusted basic earnings per share was 119.6
pence (2022: 85.1 pence) and Total basic earnings per share was
142.8 pence (2022: 21.3 pence). The average number of shares used
in deriving these calculations is 393.8 million, with the closing
number outstanding being 384.7 million.
Capital expenditure
Major components of the £519 million
capitalised during 2023 were the Group's strategic developments of
three Open Cycle Gas Turbine (OCGT) projects (£189 million), and
Pellet Plant expansion projects (£76 million). Further information
on expected commissioning dates for these projects can be seen in
the CEO's review. Capitalised spend on UK BECCS was £18 million
(2022: £19 million). Expenditure is being minimised as the Group
awaits clarity from the UK Government on support for BECCS at
Drax Power Station.
Cash and net debt
Net cash
movements
Operating cashflows before movements
in working capital of £1,013 million were an increase of 38%
(2022: £734 million), reflecting increases in Adjusted EBITDA. Both
years represented around 100% of Adjusted EBITDA including
EGL. Cash generated from operations in 2023, inclusive of movements
in working capital, was £1,111 million (2022: £320
million).
Working capital was an inflow of £108 million,
details of the movements can be seen in note 7. The key movements
being the return of collateral payments (£155 million inflow, 2022:
£407 million outflow) associated with the maturity of power
contracts sold via exchanges and lower spot prices, and lower
receivables (£71 million inflow, 2022: £379 million outflow). Both
of these movements were attributable to increased power prices in
2022. These were partially offset by an increase in ROC assets
leading to a £104 million cash outflow. At 31 December 2023 the
Group had accelerated £298 million of cash flows using standard
renewable certificate sales (2022: £331 million). Payables showed
an outflow of £31 million as commodity prices stabilised,
after a £432 million inflow in 2022.
The Group has access to a receivables
monetisation facility within the Customers I&C business,
totalling £400 million. At 31 December 2023 £400 million was
drawn under this facility (2022: £400 million). The term of this
facility was extended during the year to 2025, reducing to
£300 million thereafter. The facility grew from £200 million at the
start of 2022 to £400 million by year end, as power prices and
therefore trade receivables rose. The increase helping
to offset the associated working capital requirements and will
reduce as contracted positions unwind and power prices fall. This
is a non-recourse facility, with a sale of the underlying
receivable asset, accelerating cash receipt. At the point of sale,
Drax transfers substantially all the risks and rewards of ownership
through the non-recourse nature of the transaction. No obligations
are created from the transfer and no obligation is
recognised.
Cash flows associated with capital expenditure
on the three OCGT projects are lower than the accounting additions
recorded because of the use of deferred letters of credit to extend
payment terms. These provide a working capital benefit to the Group
through extending terms by a period of less than twelve months, to
more closely align the cash outflows on the construction of the
assets with the cash inflows from the commencement of their
operation. As set out in note 4, these balances are not treated as
Net debt. Of the total amount outstanding under deferred letter of
credit and similar facilities at 31 December 2023 of £225 million
(2022: £215 million) the capital expenditure proportion was £155
million (31 December 2022: £70 million). The impact of this
facility reduced the cash outflow in the purchases of property,
plant, and equipment and payables lines in the Consolidated cash
flow statement.
Net interest payments of £95 million (2022: £74
million) increased in line with the increased interest charge in
the Consolidated income statement.
Corporation tax payments totalled £180 million
(2022: £39 million). The primary driver of the increase was the
increase in taxable profits arising in UK entities leading to
higher payments on account. Separately, the cash outflow on EGL,
which is a levy administered within the corporation tax framework,
was £196 million.
Returns to shareholders totalled £236 million,
comprising £149 million of share buyback payments (2022: £nil) and
£86 million of dividend payments (2022: £79 million).
Net debt and
Net debt: Adjusted EBITDA
Both ratios of Net debt: Adjusted EBITDA
including and excluding EGL are significantly below the Group's
long-term target of around 2 times.
Liquidity
In November 2023, Drax repaid C$100 million of
its C$300 million ESG term-loan and extended the maturity of the
remaining C$200 million from 2024 to 2026. This facility includes
an embedded ESG component which adjusts the margin payable based on
Drax's carbon intensity measured against an annual
benchmark.
Cash and committed facilities of £639 million
at 31 December 2023 provides substantial headroom over our
short-term liquidity requirements. In addition to cash-on-hand, the
Group has access to a £300 million ESG-linked Revolving Credit
Facility (RCF) and a C$10 million RCF. The C$10 million RCF
was allowed to expire in January 2024. Also in January 2024, the
£300 million ESG-linked RCF was extended by a year with an expiry
now in January 2026.
Net debt and
Net debt: Adjusted EBITDA
|
Year
ended 31 December
|
|
2023
£m
|
2022
£m
|
Cash and cash equivalents
|
380
|
238
|
Current borrowings
|
(264)
|
(44)
|
Non-current borrowings
|
(1,161)
|
(1,397)
|
Impact of hedging instruments
|
(38)
|
(2)
|
Net
debt
|
(1,084)
|
(1,206)
|
Collateral posted
|
79
|
234
|
Net debt
excluding collateral
|
(1,005)
|
(972)
|
Adjusted EBITDA excluding EGL
|
1,214
|
731
|
Adjusted EBITDA including EGL
|
1,009
|
731
|
Net debt:
Adjusted EBITDA excluding EGL (times)
|
0.9
|
1.6
|
Net debt:
Adjusted EBITDA including EGL (times)
|
1.1
|
1.6
|
Liquidity
|
Year
ended 31 December
|
|
2023
£m
|
2022
£m
|
Cash and cash equivalents
|
380
|
238
|
RCF available but not utilised
|
260
|
260
|
Short-term liquidity facility
|
-
|
200
|
Cash and
committed facilities
|
639
|
698
|
No cash has been drawn under this RCF since its
inception in 2020, but £46 million was drawn at 31 December 2023
for letters of credit (31 December 2022: £46 million drawn for
letters of credit). The short-term £200 million liquidity facility,
entered into during December 2022 to cover collateral requirements
predominantly for that winter, was allowed to expire in December
2023. During 2023, an uncommitted £200 million facility was entered
into with the main purpose of supporting cash collateral
requirements. At 31 December 2023 £120 million was drawn under this
facility, maturing in July 2024. During February 2024 a new £258
million term loan was entered into, with maturities in 2027 and
2029.
At 31 December 2023 the Group had net cash
collateral posted of £79 million (31 December 2022: £234
million) which will be returned to the Group as the associated
contracts mature. Depending on market movements collateral may need
to be posted in future by the Group.
During 2023, the Group's Issuer Credit Ratings
were affirmed as 'BB+' by Fitch and S&P and as 'BBB (low)' by
DBRS, with a Stable Outlook in each case.
Derivatives
We use derivatives to hedge commodity price and
foreign exchange risk.
Decreases in pricing in several of these markets
in 2023 led to a net £200 million credit related to certain
remeasurements, which we continue to adjust for when presenting
Adjusted results. The gains were predominantly driven by falling
gas prices impacting gas-for-power trades and reductions in carbon
prices.
Distributions
In line with our long-standing capital
allocation policy, the Group is committed to paying a growing and
sustainable dividend. On 26 July 2023, the Board approved an
interim dividend for the six months ended 30 June 2023 of 9.2 pence
per share. This was paid on 3 October 2023 with a record date of 25
August 2023.
At the Annual General Meeting on 25 April 2024,
the Board will recommend to shareholders a resolution to pay a
final dividend for the year ended 31 December 2023 of 13.9 pence
per share. If approved, the final dividend will be paid on 17 May
2024, with a record date of 19 April 2024.
Taken together with the interim dividend of 9.2
pence per share, this would give a total dividend for 2023 of 23.1
pence per share, a 10% increase on 2022 and representing a
sustainable increase in accordance with our capital allocation
policy.
In addition to the proposed dividend, on
26 April 2023 the Group announced a share buyback programme
totalling £150 million. On 15 September 2023 the Group completed
this buyback, having purchased 26 million shares for £149 million
which are now held as treasury shares.
When thinking about additional returns
to shareholders, the group gives consideration to the profile
of future capital investments, upcoming maturity of debt,
equity dilution associated with the vesting of share schemes and
any inflow from the sale of non-core assets.
Going concern and viability
The Group's financial performance in 2023 was
strong, delivering improved profitability and a decrease in Net
debt to Adjusted EBITDA. Our financing platform is stable, with no
major debt repayments on core facilities due until November 2025
and significant liquidity headroom is available from both committed
and uncommitted facilities. Since 31 December 2023 the £300 million
ESG linked RCF has been extended to 2026 and a new £258 million
term loan put in place, with maturities in 2027 and
2029.
The Group refreshes its business plan and
forecasts throughout the year, including scenario modelling
designed to test the resilience of the Group's financial position
and performance to several possible downside cases. In addition,
during 2023 a reverse stress test was performed, and the
parameters required to cause a default were found to be
implausible. Based on its review of the latest forecast, the
Board is satisfied that the Group has sufficient headroom in its
cash and committed facilities, combined with available mitigating
actions, to be able to meet its liabilities as they fall due across
a range of scenarios.
The Directors therefore have a reasonable
expectation that the Group will be able to continue in operation
over the five-year period of the viability assessment.
Consequently, the Directors also have a reasonable expectation that
the Group will continue in existence for a period of
at least 12 months from the date of the approval of the
financial statements and have therefore adopted the going concern
basis when preparing the Consolidated financial
statements.
Other information
BMM
acquisition
In August 2023 the Customers business completed
the acquisition of BMM Energy Solutions Limited, an electric
vehicle charge point installer, for consideration of £9 million.
This acquisition strengthens the Group's end-to-end charging
proposition in the UK and demonstrates the Group's commitment to
helping customers achieve their net zero ambitions.
Pension scheme
merger
In January 2023 the merger of the Group's two
defined benefit pension schemes was completed, reducing levels of
administrative expense and time taken to manage the two
schemes.
Directors' responsibilities statement
The Directors are responsible for preparing the
Annual Report and the Financial Statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare
financial statements for each financial year. Under that law the
Directors are required to prepare the group financial statements in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and United Kingdom
adopted International Accounting Standards and have elected to
prepare the
Parent Company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law),
set out in FRS 101 Reduced Disclosure Framework. Under company law
the Directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for
that period.
In preparing the Parent Company financial
statements, the Directors are required to:
· select suitable
accounting policies and then apply them consistently;
· make judgements
and accounting estimates that are reasonable and
prudent;
· state whether
applicable UK Accounting Standards have been followed, subject to
any material departures disclosed and explained in the financial
statements; and
· prepare the
financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in
business.
In preparing the Group financial statements,
International Accounting Standard 1 requires that
Directors:
· properly select
and apply accounting policies;
· present
information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information;
· provide
additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
· make an
assessment of the Company's ability to continue as a going
concern.
The Directors are responsible for keeping
adequate accounting records that are sufficient to show and explain
the Company's transactions and disclose with reasonable accuracy at
any time the financial position of the Company and enable them to
ensure that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the
Company
and hence for taking reasonable steps for the
prevention and detection of fraud and other
irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate and financial
information included on the Company's website. Legislation in the
United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
Responsibility
statement
We confirm that to the best of our
knowledge:
· the financial
statements, prepared in accordance with the relevant financial
reporting framework, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company
and the undertakings included in the consolidation taken as a
whole;
· the Strategic
report includes a fair review of the development and performance of
the business and the position of the Company and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they
face; and
· the Annual Report
and financial statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Company's performance, business model
and strategy.
This responsibility statement was approved by
the Board of Directors on 28 February 2024 and is signed on its
behalf by:
Will
Gardiner,
CEO
Consolidated financial statements
Consolidated income statement
|
Notes
|
Year ended 31 December
2023
|
|
Year
ended 31 December 2022
|
Adjusted
results (1)
£m
|
Exceptional
items and
certain
remeasurements
£m
|
Total
results
£m
|
|
Adjusted
results (1)
£m
|
Exceptional
items
and
certain
remeasurements
£m
|
Total
results
£m
|
Revenue
|
2
|
7,842.4
|
282.9
|
8,125.3
|
|
8,159.2
|
(383.9)
|
7,775.3
|
Cost of sales
|
|
(5,884.4)
|
(82.7)
|
(5,967.1)
|
|
(6,837.7)
|
85.7
|
(6,752.0)
|
Electricity Generator Levy
|
|
(204.6)
|
-
|
(204.6)
|
|
-
|
-
|
-
|
Gross
profit
|
|
1,753.4
|
200.2
|
1,953.6
|
|
1,321.5
|
(298.2)
|
1,023.3
|
Operating and administrative
expenses
|
|
(711.7)
|
-
|
(711.7)
|
|
(542.8)
|
-
|
(542.8)
|
Impairment losses on financial
assets
|
|
(32.5)
|
-
|
(32.5)
|
|
(48.0)
|
-
|
(48.0)
|
Depreciation
|
|
(195.6)
|
-
|
(195.6)
|
|
(208.0)
|
-
|
(208.0)
|
Amortisation
|
|
(29.4)
|
-
|
(29.4)
|
|
(31.4)
|
-
|
(31.4)
|
Impairment of non-current assets
|
|
(1.7)
|
(69.1)
|
(70.8)
|
|
(16.6)
|
(24.9)
|
(41.5)
|
Other gains/(losses)
|
|
0.7
|
(4.5)
|
(3.8)
|
|
(5.8)
|
-
|
(5.8)
|
Share of (losses)/profits from
associates
|
|
(1.6)
|
-
|
(1.6)
|
|
0.5
|
-
|
0.5
|
Operating
profit/(loss)
|
|
781.6
|
126.6
|
908.2
|
|
469.4
|
(323.1)
|
146.3
|
Foreign exchange (losses)/gains
|
|
(14.3)
|
4.9
|
(9.4)
|
|
14.8
|
(3.8)
|
11.0
|
Interest payable and similar charges
|
|
(115.2)
|
(0.3)
|
(115.5)
|
|
(83.1)
|
(0.4)
|
(83.5)
|
Interest receivable
|
|
13.1
|
-
|
13.1
|
|
4.3
|
-
|
4.3
|
Profit/(loss)
before tax
|
|
665.2
|
131.2
|
796.4
|
|
405.4
|
(327.3)
|
78.1
|
Tax:
|
|
|
|
|
|
|
|
|
- Before effect of changes
in tax rate
|
3
|
(195.2)
|
(37.3)
|
(232.5)
|
|
(64.5)
|
62.2
|
(2.3)
|
- Effect of changes in tax rate
|
3
|
(0.6)
|
(2.4)
|
(3.0)
|
|
(2.9)
|
9.6
|
6.7
|
Total tax (charge)/credit
|
|
(195.8)
|
(39.7)
|
(235.5)
|
|
(67.4)
|
71.8
|
4.4
|
Profit/(loss)
for the period
|
|
469.4
|
91.5
|
560.9
|
|
338.0
|
(255.5)
|
82.5
|
Attributable to:
|
|
|
|
|
|
|
|
|
Owners of the parent company
|
|
470.7
|
91.5
|
562.2
|
|
340.6
|
(255.5)
|
85.1
|
Non-controlling interests
|
|
(1.3)
|
-
|
(1.3)
|
|
(2.6)
|
-
|
(2.6)
|
Earnings per share:
|
|
Pence
|
|
Pence
|
Pence
|
|
Pence
|
For net profit
for the period attributable to owners of the parent
company
|
|
|
|
|
|
|
|
- Basic
|
5
|
119.6
|
|
142.8
|
85.1
|
|
21.3
|
- Diluted
|
5
|
116.8
|
|
139.5
|
82.2
|
|
20.5
|
(1) Adjusted results are
stated after adjusting for exceptional items (including impairment
of non-current assets, proceeds from legal claims, change in fair
value of financial instruments and impact of tax rate changes), and
certain remeasurements. See note 4 for further details.
Consolidated statement of comprehensive
income
|
Notes
|
Year
ended 31 December
|
2023
£m
|
2022
£m
|
Profit for the
period
|
|
560.9
|
82.5
|
Items that
will not be subsequently reclassified to profit or
loss:
|
|
|
|
Remeasurement of defined benefit pension
scheme
|
|
(28.8)
|
(24.4)
|
Deferred tax on remeasurement of defined
benefit pension scheme
|
3
|
7.2
|
6.1
|
Gains on equity investments
|
|
0.4
|
-
|
Net fair value losses on cost of
hedging
|
|
7.5
|
(19.0)
|
Deferred tax on cost of hedging
|
3
|
(1.9)
|
2.2
|
Net fair value (losses)/gains on cash flow
hedges
|
|
(80.2)
|
205.5
|
Deferred tax on cash flow hedges
|
3
|
20.1
|
(49.5)
|
Items that may
be subsequently reclassified to profit or loss:
|
|
|
|
Exchange differences on translation of foreign
operations attributable to owners of the
parent company
|
|
(10.3)
|
42.4
|
Exchange differences on translation of foreign
operations attributable to non-controlling interests
|
|
(0.4)
|
3.4
|
Net fair value gains/(losses) on cash flow
hedges
|
|
346.7
|
(593.1)
|
Net gains on cash flow hedges reclassified to
profit or loss
|
|
256.1
|
432.9
|
Deferred tax on cash flow hedges
|
3
|
(150.8)
|
43.9
|
Other
comprehensive income
|
|
365.6
|
50.4
|
Total
comprehensive income for the year
|
|
926.5
|
132.9
|
Attributable
to:
|
|
|
|
Owners of the parent company
|
|
928.2
|
132.1
|
Non-controlling interests
|
|
(1.7)
|
0.8
|
Consolidated balance sheet
|
Notes
|
As at
31 December
|
|
As at 1
January
|
2023
£m
|
Restated
(1)
2022
£m
|
|
Restated
(1)
2022
£m
|
Assets
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
|
Goodwill
|
|
416.7
|
424.2
|
|
416.3
|
Intangible assets
|
|
81.5
|
142.3
|
|
188.6
|
Property, plant and equipment
|
|
2,698.8
|
2,388.0
|
|
2,310.7
|
Right-of-use assets
|
|
122.2
|
138.3
|
|
119.8
|
Investments
|
|
8.9
|
6.9
|
|
5.5
|
Retirement benefit surplus
|
|
18.4
|
38.5
|
|
48.9
|
Deferred tax assets
|
3
|
52.9
|
37.3
|
|
28.7
|
Derivative financial instruments
|
|
293.6
|
361.0
|
|
190.2
|
|
|
3,693.0
|
3,536.5
|
|
3,308.7
|
Current
assets
|
|
|
|
|
|
Inventories
|
|
328.4
|
348.1
|
|
199.1
|
Renewable certificate assets
|
|
292.2
|
187.8
|
|
301.4
|
Trade and other receivables and contract
assets
|
|
976.9
|
1,227.0
|
|
641.9
|
Derivative financial instruments
|
|
368.4
|
396.9
|
|
410.1
|
Cash and cash equivalents
|
|
379.5
|
238.0
|
|
317.4
|
|
|
2,345.4
|
2,397.8
|
|
1,869.9
|
Liabilities
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Trade and other payables and contract
liabilities
|
|
(1,539.6)
|
(1,527.9)
|
|
(1,211.1)
|
Lease liabilities
|
|
(25.1)
|
(22.7)
|
|
(15.1)
|
Current tax liabilities
|
|
(20.6)
|
(23.3)
|
|
(3.4)
|
Borrowings
|
|
(264.2)
|
(44.3)
|
|
(40.6)
|
Provisions
|
|
(6.6)
|
-
|
|
-
|
Derivative financial instruments
|
|
(231.6)
|
(590.0)
|
|
(484.2)
|
|
|
(2,087.7)
|
(2,208.2)
|
|
(1,754.4)
|
Net current
assets
|
|
257.7
|
189.6
|
|
115.5
|
Non-current
liabilities
|
|
|
|
|
|
Borrowings
|
|
(1,161.1)
|
(1,396.6)
|
|
(1,320.4)
|
Lease liabilities
|
|
(110.7)
|
(130.4)
|
|
(110.8)
|
Provisions
|
|
(72.2)
|
(58.6)
|
|
(86.4)
|
Deferred tax liabilities
|
3
|
(317.1)
|
(141.6)
|
|
(225.3)
|
Derivative financial instruments
|
|
(306.6)
|
(674.7)
|
|
(374.5)
|
|
|
(1,967.7)
|
(2,401.9)
|
|
(2,117.4)
|
Net
assets
|
|
1,983.0
|
1,324.2
|
|
1,306.8
|
Shareholders'
equity
|
|
|
|
|
|
Issued equity
|
|
49.1
|
47.9
|
|
47.7
|
Share premium
|
|
441.2
|
433.3
|
|
432.2
|
Hedge reserve
|
|
207.4
|
(152.0)
|
|
(177.4)
|
Cost of hedging reserve
|
|
18.7
|
40.1
|
|
78.5
|
Other reserves
|
|
588.2
|
747.7
|
|
706.0
|
Retained profits
|
|
666.4
|
193.8
|
|
198.3
|
Total equity
attributable to owners of the parent company
|
|
1,971.0
|
1,310.8
|
|
1,285.3
|
Non-controlling interests
|
|
12.0
|
13.4
|
|
21.5
|
Total
shareholders' equity
|
|
1,983.0
|
1,324.2
|
|
1,306.8
|
(1) Comparative amounts
have been restated to reflect the Group's revised application of
the offsetting criteria to physically settled derivative contracts.
This has impacted the presentation of derivative assets and
liabilities recognised in the Consolidated balance sheet. The
valuation of derivatives and the overall net asset position remain
unchanged.
The Consolidated financial statements of Drax
Group plc, registered number 5562053, were approved and authorised
for issue by the Board of Directors on 28 February 2024.
Signed on behalf of the Board of
Directors:
Andy
Skelton,
CFO
Consolidated statement of changes in equity
|
Issued
equity
£m
|
Share
premium
£m
|
Hedge
reserve
£m
|
Cost
of
hedging
£m
|
Other
reserves
£m
|
Retained
profits
£m
|
Non-
controlling
interests
£m
|
Total
£m
|
At
1 January 2022
|
47.7
|
432.2
|
(177.4)
|
78.5
|
706.0
|
198.3
|
21.5
|
1,306.8
|
Profit/(loss) for the year
|
-
|
-
|
-
|
-
|
-
|
85.1
|
(2.6)
|
82.5
|
Other comprehensive income/(expense)
|
-
|
-
|
39.7
|
(16.8)
|
42.4
|
(18.3)
|
3.4
|
50.4
|
Total
comprehensive income/(expense)
for the year
|
-
|
-
|
39.7
|
(16.8)
|
42.4
|
66.8
|
0.8
|
132.9
|
Equity dividends paid (note 6)
|
-
|
-
|
-
|
-
|
-
|
(78.9)
|
-
|
(78.9)
|
Issue of share capital (note 8)
|
0.2
|
1.1
|
-
|
-
|
-
|
-
|
-
|
1.3
|
Contributions from non-controlling
interests
|
-
|
-
|
-
|
-
|
-
|
-
|
1.3
|
1.3
|
Acquisition of non-controlling interests
without a change in control
|
-
|
-
|
-
|
-
|
(0.7)
|
(9.3)
|
(10.2)
|
(20.2)
|
Total
transactions with the owners in their capacity as
owner
|
0.2
|
1.1
|
-
|
-
|
(0.7)
|
(88.2)
|
(8.9)
|
(96.5)
|
Movements on cash flow hedges released directly
from equity
|
-
|
-
|
(19.1)
|
-
|
-
|
-
|
-
|
(19.1)
|
Deferred tax on cash flow hedges released
directly from equity (note 3)
|
-
|
-
|
4.8
|
-
|
-
|
-
|
-
|
4.8
|
Movements on cost of hedging released directly
from equity
|
-
|
-
|
-
|
(28.8)
|
-
|
-
|
-
|
(28.8)
|
Deferred tax on cost of hedging released
directly from equity (note 3)
|
-
|
-
|
-
|
7.2
|
-
|
-
|
-
|
7.2
|
Movement in equity associated with
share‑based
payments
|
-
|
-
|
-
|
-
|
-
|
9.5
|
-
|
9.5
|
Deferred tax on share-based payments released
directly from equity (note 3)
|
-
|
-
|
-
|
-
|
-
|
7.4
|
-
|
7.4
|
At
1 January 2023
|
47.9
|
433.3
|
(152.0)
|
40.1
|
747.7
|
193.8
|
13.4
|
1,324.2
|
Profit/(loss) for the year
|
-
|
-
|
-
|
-
|
-
|
562.2
|
(1.3)
|
560.9
|
Other comprehensive income/(expense)
|
-
|
-
|
391.9
|
5.6
|
(10.3)
|
(21.2)
|
(0.4)
|
365.6
|
Total
comprehensive income/(expense)
for the year
|
-
|
-
|
391.9
|
5.6
|
(10.3)
|
541.0
|
(1.7)
|
926.5
|
Equity dividends paid (note 6)
|
-
|
-
|
-
|
-
|
-
|
(86.3)
|
-
|
(86.3)
|
Issue of share capital (note 8)
|
1.2
|
7.9
|
-
|
-
|
-
|
-
|
-
|
9.1
|
Contributions from non-controlling
interests
|
-
|
-
|
-
|
-
|
-
|
-
|
0.3
|
0.3
|
Repurchase of own shares
|
-
|
-
|
-
|
-
|
(149.2)
|
-
|
-
|
(149.2)
|
Total
transactions with the owners in their capacity as
owner
|
1.2
|
7.9
|
-
|
-
|
(149.2)
|
(86.3)
|
0.3
|
(226.1)
|
Movements on cash flow hedges released directly
from equity
|
-
|
-
|
(43.4)
|
-
|
-
|
-
|
-
|
(43.4)
|
Deferred tax on cash flow hedges released
directly from equity (note 3)
|
-
|
-
|
10.9
|
-
|
-
|
-
|
-
|
10.9
|
Movements on cost of hedging released directly
from equity
|
-
|
-
|
-
|
(36.0)
|
-
|
-
|
-
|
(36.0)
|
Deferred tax on cost of hedging released
directly from equity (note 3)
|
-
|
-
|
-
|
9.0
|
-
|
-
|
-
|
9.0
|
Movement in equity associated with
share‑based
payments
|
-
|
-
|
-
|
-
|
-
|
13.4
|
-
|
13.4
|
Tax on share-based payments released directly
from equity (note 3)
|
-
|
-
|
-
|
-
|
-
|
4.5
|
-
|
4.5
|
At
31 December 2023
|
49.1
|
441.2
|
207.4
|
18.7
|
588.2
|
666.4
|
12.0
|
1,983.0
|
Consolidated cash flow statement
|
Notes
|
Year
ended 31 December
|
2023
£m
|
2022
£m
|
Cash generated
from operations
|
7
|
1,111.0
|
320.3
|
Income taxes paid
|
|
(180.0)
|
(38.7)
|
Interest paid
|
|
(106.1)
|
(77.2)
|
Interest received
|
|
10.7
|
3.3
|
Net cash from
operating activities
|
|
835.6
|
207.7
|
Cash flows
from investing activities
|
|
|
|
Purchases of property, plant and
equipment
|
|
(429.8)
|
(163.9)
|
Purchases of intangible assets
|
|
(11.3)
|
(10.8)
|
Proceeds from the sale of property, plant and
equipment
|
|
-
|
1.6
|
Acquisition of businesses net of cash
acquired
|
|
(9.0)
|
(7.6)
|
Purchases of equity in associates
|
|
(1.7)
|
-
|
Net cash used
in investing activities
|
|
(451.8)
|
(180.7)
|
Cash flows
from financing activities
|
|
|
|
Equity dividends paid
|
6
|
(86.3)
|
(78.9)
|
Contributions from non-controlling
interests
|
|
0.3
|
1.3
|
Acquisition of non-controlling interests
without a change in control
|
|
-
|
(19.6)
|
Proceeds from issue of share capital
|
|
8.6
|
1.2
|
Repurchase of own shares
|
|
(149.2)
|
-
|
Drawdown of facilities
|
|
140.0
|
188.5
|
Repayment of facilities
|
|
(125.3)
|
(186.4)
|
Payment of principal of lease
liabilities
|
|
(25.8)
|
(18.0)
|
Other financing costs paid
|
|
(0.2)
|
-
|
Net cash
absorbed by financing activities
|
|
(237.9)
|
(111.9)
|
Net
increase/(decrease) in cash and cash equivalents
|
|
145.9
|
(84.9)
|
Cash and cash equivalents at 1
January
|
|
238.0
|
317.4
|
Effect of changes in foreign exchange
rates
|
|
(4.4)
|
5.5
|
Cash and cash
equivalents at 31 December
|
|
379.5
|
238.0
|
Non-cash transactions recognised in the
Consolidated income statement are reconciled to operating cash
flows as part of the disclosure provided in note 7. Further details
of the cash flow impact of exceptional items can be found in note
4.
1.
Segmental reporting
Reportable segments are presented in a manner
consistent with internal reporting provided to the chief operating
decision maker which is considered to be the Board. The Group is
organised into three businesses, with a dedicated management team
for each. The Board reviews the performance of each of these
businesses separately, and each represents a reportable
segment:
· Pellet
Production: production and subsequent sale of biomass pellets from
the Group's processing facilities in North America;
· Generation: the
generation and sale of electricity in the UK; and
· Customers:
supply of electricity and gas to non-domestic customers in the
UK.
Operating costs that can be reasonably allocated
to the activities of a reportable segment are included within the
results of that reportable segment. Central corporate and
commercial functions provide certain specialist and shared
services, including optimisation of the Group's positions. Central
corporate function costs that cannot be reasonably allocated to the
activities of a reportable segment are included within Innovation,
capital projects and other. Innovation, capital projects and other
is not a reportable segment as it does not earn revenues, however
it is included in the information presented below to enable
reconciliation of the segmental amounts presented to the
consolidated IFRS results recognised in these Consolidated
financial statements.
Given the principal activity of the Group is a
generator and seller of electricity, the Consolidated income
statement includes all revenue from sales of electricity during the
period. Where electricity is purchased rather than generated to
fulfil a sale, either due to operational or other requirements, the
cost of this purchase is recorded within cost of sales.
When defining gross profit within the
Consolidated financial statements, the Group follows the principal
trading considerations applied by its Pellet Production, Generation
and Customers businesses when making a sale. In respect of the
Pellet Production business, this reflects the direct costs of
production, being fibre, fuel and drying costs, direct freight and
port costs, or third-party pellet purchases. In respect of the
Generation business, this reflects the direct costs of the
commodities to generate the power, the relevant grid connection
costs that arise, and from 2023, EGL arising on applicable
renewable and low-carbon generation. In respect of the Customers
business, this reflects the direct costs of supply, being the costs
of the power or gas supplied, together with costs levied on
suppliers such as network costs, broker costs and renewables
incentive mechanisms.
Accordingly, cost of sales excludes indirect
overheads and staff costs (presented within operating and
administrative expenses), and depreciation (presented separately on
the face of the Consolidated income statement).
The accounting policies applied for the purpose
of measuring the reportable segments' profits or losses, assets and
liabilities are the same as those used in measuring the
corresponding amounts in the Consolidated financial
statements.
Seasonality of
trading
The primary activities of the Group are affected
by seasonality. Demand in the UK for electricity and gas is
typically higher in the winter period (October to March) when
temperatures are lower, which drives higher prices and higher
levels of generation. Conversely, demand is typically lower in the
summer months (April to September) when temperatures are milder,
and therefore prices and levels of generation are generally
lower.
This trend is experienced by all of the Group's
UK-based businesses, as they operate within the UK electricity and
gas markets. It is most notable within the Generation business due
to its scale and the flexible operation of its thermal generation
plant.
The Pellet Production business incurs certain
costs that are higher in winter months due to the impact of weather
conditions, such as fibre drying costs and heating costs.
Production volumes and margins are typically higher in the summer
months. The business is protected from demand fluctuations due to
seasonality by regular production and dispatch schedules under its
contracts with customers, both intra-group and
externally.
Segment
revenues and results
The following is an analysis of the Group's
performance by reportable segment and any other information
necessary to enable reconciliation to the Group's total IFRS
results recognised for the year ended 31 December 2023.
Revenue for each segment is split between sales to external parties
and inter-segment sales. Inter-segment sales are eliminated in the
intra-group eliminations column along with any adjustments required
for unrealised profits (primarily inventory purchased by the
Generation segment from the Pellet Production segment that is still
held as inventory at the reporting date).
Adjusted EBITDA by reportable segment is
presented in note 4.
|
Year ended 31 December
2023
|
Pellet
Production
£m
|
Generation
£m
|
Customers
£m
|
Innovation,
capital
projects
and
other
£m
|
Intra-group
eliminations
£m
|
Adjusted
results
£m
|
Exceptional
items
and certain
remeasurements
£m
|
Total
results
£m
|
Revenue
|
|
|
|
|
|
|
|
|
External sales
|
397.8
|
2,486.3
|
4,958.3
|
-
|
-
|
7,842.4
|
282.9
|
8,125.3
|
Inter-segment sales
|
424.6
|
4,300.7
|
-
|
-
|
(4,725.3)
|
-
|
-
|
-
|
Total
revenue
|
822.4
|
6,787.0
|
4,958.3
|
-
|
(4,725.3)
|
7,842.4
|
282.9
|
8,125.3
|
Cost of sales
|
(511.8)
|
(5,320.7)
|
(4,763.3)
|
-
|
4,711.4
|
(5,884.4)
|
(82.7)
|
(5,967.1)
|
Electricity Generator Levy
|
-
|
(204.6)
|
-
|
-
|
-
|
(204.6)
|
-
|
(204.6)
|
Gross
profit
|
310.6
|
1,261.7
|
195.0
|
-
|
(13.9)
|
1,753.4
|
200.2
|
1,953.6
|
Operating and administrative
expenses
|
(221.7)
|
(328.2)
|
(90.7)
|
(78.1)
|
7.0
|
(711.7)
|
-
|
(711.7)
|
Impairment losses on financial
assets
|
-
|
-
|
(32.5)
|
-
|
-
|
(32.5)
|
-
|
(32.5)
|
Depreciation and amortisation
|
(94.0)
|
(103.0)
|
(22.5)
|
(3.3)
|
(2.2)
|
(225.0)
|
-
|
(225.0)
|
Impairment of non-current assets
|
(2.8)
|
1.1
|
-
|
-
|
-
|
(1.7)
|
(69.1)
|
(70.8)
|
Other gains/(losses)
|
0.5
|
0.2
|
-
|
-
|
-
|
0.7
|
(4.5)
|
(3.8)
|
Share of (losses)/profits from
associates
|
(1.7)
|
-
|
-
|
0.1
|
-
|
(1.6)
|
-
|
(1.6)
|
Operating
profit/(loss)
|
(9.1)
|
831.8
|
49.3
|
(81.3)
|
(9.1)
|
781.6
|
126.6
|
908.2
|
Further information on the main revenue streams
of each segment is presented in note 2.
Included within the Innovation, capital projects
and other segment historically has been certain corporate costs
that are utilised by the wider Group. In the current year,
management has undertaken an exercise to recharge these costs to
the respective business segments: £10.8 million to Pellet
Production, £81.9 million to Generation and £7.5 million to
Customers. This updated allocation methodology has not been applied
to the comparative amounts presented in the table below.
The following is an analysis of the Group's
performance by reportable segment for the year ended
31 December 2022:
|
Year
ended 31 December 2022
|
Pellet
Production
£m
|
Generation
£m
|
Customers
£m
|
Innovation, capital projects and other
£m
|
Intra-group
eliminations
£m
|
Adjusted
results
£m
|
Exceptional
items
and
certain
remeasurements
£m
|
Total
results
£m
|
Revenue
|
|
|
|
|
|
|
|
|
External sales
|
377.2
|
3,638.9
|
4,143.1
|
-
|
-
|
8,159.2
|
(383.9)
|
7,775.3
|
Inter-segment sales
|
425.4
|
3,719.3
|
-
|
-
|
(4,144.7)
|
-
|
-
|
-
|
Total
revenue
|
802.6
|
7,358.2
|
4,143.1
|
-
|
(4,144.7)
|
8,159.2
|
(383.9)
|
7,775.3
|
Cost of sales
|
(501.9)
|
(6,479.2)
|
(3,985.0)
|
-
|
4,128.4
|
(6,837.7)
|
85.7
|
(6,752.0)
|
Gross
profit
|
300.7
|
879.0
|
158.1
|
-
|
(16.3)
|
1,321.5
|
(298.2)
|
1,023.3
|
Operating and administrative
expenses
|
(167.3)
|
(183.5)
|
(84.3)
|
(113.6)
|
5.9
|
(542.8)
|
-
|
(542.8)
|
Impairment losses on financial
assets
|
-
|
-
|
(48.0)
|
-
|
-
|
(48.0)
|
-
|
(48.0)
|
Depreciation and amortisation
|
(119.9)
|
(98.6)
|
(25.5)
|
(3.3)
|
7.9
|
(239.4)
|
-
|
(239.4)
|
Impairment of non-current assets
|
-
|
(16.6)
|
-
|
-
|
-
|
(16.6)
|
(24.9)
|
(41.5)
|
Other losses
|
(2.0)
|
(3.8)
|
-
|
-
|
-
|
(5.8)
|
-
|
(5.8)
|
Share of profits from associates
|
0.5
|
-
|
-
|
-
|
-
|
0.5
|
-
|
0.5
|
Operating
profit/(loss)
|
12.0
|
576.5
|
0.3
|
(116.9)
|
(2.5)
|
469.4
|
(323.1)
|
146.3
|
Capital
expenditure by reportable segment
Assets and working capital are monitored on a
consolidated basis; however, capital expenditure is monitored by
segment.
|
Additions
to intangible assets
|
|
Additions
to property, plant and
equipment
|
2023
£m
|
2022
£m
|
|
2023
£m
|
2022
£m
|
At 31
December
|
|
|
|
|
|
Pellet Production
|
-
|
-
|
|
163.0
|
66.0
|
Generation
|
1.9
|
2.8
|
|
333.4
|
171.5
|
Customers
|
2.7
|
2.3
|
|
0.2
|
0.3
|
Innovation, capital projects and
other
|
5.3
|
4.3
|
|
12.6
|
8.2
|
Total
|
9.9
|
9.4
|
|
509.2
|
246.0
|
Total cash outflows in relation to capital
expenditure during the year were £441.1 million (2022: £174.7
million). In the current year, the cash outflow in relation to
property, plant and equipment is lower than the cost capitalised
predominantly as a result of prepaid amounts in the prior year
being capitalised in 2023 and an increase in creditors relating to
capital expenditure compared to the prior year.
Intra-group trading
Intra-group transactions are carried out at
management's best estimate of arm's-length, commercial terms that,
where possible, equate to market prices. During 2023, the Pellet
Production segment sold biomass pellets and provided associated
services with a total value of £424.6 million (2022: £425.4
million) to the Generation segment and the Generation segment sold
electricity, gas and renewable energy certificates with a total
value of £4,252.0 million (2022: £3,719.3 million) to the Customers
segment. During 2023 the Generation segment sold biomass pellets to
the Pellet Production segment with a total value of £48.7 million
(2022: £nil).
The impact of all intra-group transactions,
including any unrealised profit arising, is eliminated on
consolidation.
Major
customers
There was no individual customer, in either the
current or previous financial year, that represented 10% or more of
total revenue.
Geographical
analysis of revenue and non-current assets
The geographic information analyses the Group's
revenue and non-current assets by the entity's country of domicile.
In presenting the geographic information, segment revenue has been
based on the geographic location of customers and segment assets
were based on the geographic location of the assets.
The Group's external revenue and non-current
assets for the Generation and Customers segments are all UK based.
The Pellet Production segment has third-party pellet sales to both
the UK and other locations around the world. The Pellet Production
segment's non-current assets are located in North America, in both
Canada and the US.
|
Revenue
(based on
location of customer)
|
Year
ended 31 December
|
2023
£m
|
2022
£m
|
North America (Canada and US)
|
8.5
|
10.6
|
Europe (excluding UK)
|
60.3
|
27.6
|
Asia
|
280.1
|
275.4
|
UK
|
7,776.4
|
7,461.7
|
Total
|
8,125.3
|
7,775.3
|
|
|
|
|
Non-current assets(1)
(based on
asset's location)
|
As at 31
December
|
2023
£m
|
2022
£m
|
Canada
|
406.7
|
542.6
|
US
|
666.0
|
502.6
|
Asia
|
0.3
|
-
|
UK
|
2,255.1
|
2,054.5
|
Total
|
3,328.1
|
3,099.7
|
(1) Non-current assets
comprise goodwill, intangible assets, property, plant and
equipment, right-of-use assets and investments.
2.
Revenue
The majority of the Group's revenue is within
the scope of IFRS 15. The other sources of the Group's revenue
outside the scope of IFRS 15 comprise certain remeasurements,
amounts reclassified to revenue for gains and losses on UK CPI
inflation swaps, and income from the Government's Energy Bill
Relief Scheme (EBRS) and Energy Bills Discount Scheme (EBDS). See
note 4 for further details of certain remeasurements.
|
Year ended 31 December
2023
|
|
Year
ended 31 December 2022
|
Adjusted
results
£m
|
Exceptional
items and
certain
remeasurements
£m
|
Total
results
£m
|
|
Adjusted
results
£m
|
Exceptional
items
and
certain
remeasurements
£m
|
Total
results
£m
|
Revenue from contracts with
customers
|
7,540.4
|
-
|
7,540.4
|
|
7,882.5
|
-
|
7,882.5
|
Other revenue
|
302.0
|
282.9
|
584.9
|
|
276.7
|
(383.9)
|
(107.2)
|
Total
revenue
|
7,842.4
|
282.9
|
8,125.3
|
|
8,159.2
|
(383.9)
|
7,775.3
|
Accounting
policy
Revenue represents amounts receivable for goods
or services provided to customers in the normal course of business,
net of trade discounts, VAT and other sales-related taxes and
excludes transactions between Group companies. Revenue is presented
gross in the Consolidated income statement when the Group controls
the specified good or service prior to the transfer to the
customer.
A summary of the Group's principal revenue
streams, along with the nature and timing of performance
obligations, payment terms, methods of recognising revenue, and any
estimation uncertainties, is given in the table below. Further
details on significant elements of revenue, principally how the
Contract for Difference (CfD) and Renewables Obligation (RO)
schemes operate and the related accounting, are provided below the
table.
Revenue stream
(Segment)
|
Nature and timing of performance obligations,
including significant payment terms
|
|
Method of recognising revenue, including any
estimation uncertainties
|
Pellet sales (Pellet Production)
|
The Group's Pellet Production business produces
biomass pellets which are sold to external customers.
Customers generally obtain control of the pellets at the point the
pellets are loaded onto the shipping vessel.
Where freight is also arranged for the
customer, these sales are known as Cost, insurance and freight
(CIF) sales. The freight component is considered a separate
performance obligation.
Invoices are raised in line with contractual
terms and are usually payable within 4-10 days.
|
|
Revenue is recognised at the point that
the pellets are loaded onto the shipping vessel.
The amount of revenue recognised is based on the contracted
price and volume of the pellets.
For CIF sales, revenue for the freight portion
is recognised over the period the vessel sails.
|
Electricity sales (Generation)
|
The Group's Generation business has contracts
for wholesale electricity sales. Performance obligations, being the
supply of electricity, are met either via generation or through the
procurement of electricity from counterparties. The performance
obligations for these contracts are deemed to be a series of
distinct goods that are substantially the same and transfer
consecutively. Control is deemed to have transferred to the
customer at the point that the electricity has been supplied in
accordance with the contractual terms.
Invoices are typically raised on the fifth
banking day following the month of supply, in line with the Grid
Trade Master Agreement (GTMA) contractual terms, and are payable on
the fifth banking day following the date of invoice.
|
|
Revenues from sales contracts fulfilled though
generation are measured based upon metered output at rates
specified under contract terms. These are recognised under the
output method, whereby revenue is recognised based on the value
transferred to the customer.
Revenue from sales contracts fulfilled through
procured electricity is recognised at the point at which this
electricity is supplied to the counterparty in accordance with the
contractual terms at rates specified under
the contract.
|
Renewable certificate
sales (Generation)
|
Renewables Obligation Certificates (ROCs) and
Renewable Energy Guarantees of Origin (REGOs) are sold to
counterparties at a point in time.
ROCs sold to optimise working capital are
invoiced in line with contractual terms and are usually payable
within two days.
Invoices for ROC sales to third parties are
raised when the ROCs are transferred, typically four to five months
following the end of the compliance period in which they were
generated. Invoices are usually payable within seven
days.
|
|
External ROC and REGO sales are recognised at
the point the relevant certificates are transferred to the
counterparty.
See below for further details.
|
CfD income/payment (Generation)
|
The Group's Generation business is party to a
CfD with the Low Carbon Contracts Company (LCCC), a
Government-owned entity responsible for delivering elements of the
Government's Electricity Market Reform Programme. Under the
contract, the Group makes or receives payments in respect of
electricity dispatched from a specific biomass-fuelled
generating unit.
Invoices are raised 7-10 days following the
date of supply and are settled within 28 days.
|
|
The Group recognises the income or cost arising
from the CfD in the Consolidated income statement as a component of
revenue at the point the Group meets its performance obligation
under the CfD contract. This is considered to be the point at which
the relevant generation is delivered and the payment becomes
contractually due.
See below for further details.
|
Ancillary services (Generation)
|
Ancillary services refer to the provision of a
range of system support services to National Grid. Most contracts
are for the delivery of a specific service either continually
or on an ad-hoc basis over a period of time.
Invoices are raised and subsequently settled in
line with the National Grid company ancillary services settlement
calendar, typically monthly.
|
|
Revenue is recognised by reference to the stage
of completion of the contractual performance obligations,
which are calculated by reference to the amount of the
contract term that has elapsed.
Depending on contract terms, this approach may
require judgement in estimating probable future
outcomes.
|
|
Other income (All segments)
|
Other income is derived from the sale of goods.
The customer obtains control typically at the point of delivery to
their premises or upon collection.
Invoices are raised in line with contractual
terms.
|
|
Revenue is recognised at the point the control
of the goods is transferred to the customer.
|
Electricity and gas
sales (Customers)
|
The Group's Customers business sells
electricity and gas directly to non-domestic customers.
Energy supplied is measured based upon metered consumption and
contractual rates.
The Customers business also has long-term
contracts for the sale of electricity and gas,
which are deemed as being satisfied over time in
line with the progress of the contracts.
Invoices are raised in line with contractual
terms. For small and medium-sized enterprise (SME) customers,
payment is generally due within 10-14 days. For Industrial and
Commercial (I&C) customers, payment is generally due between
28-90 days.
|
|
Revenue is recognised on the supply of
electricity or gas when a contract exists, supply has taken place,
a quantifiable price has been established or can be determined
and the amounts receivable are expected to
be recovered.
Where supply has taken place but has not yet
been measured or billed, revenue is estimated based on consumption
statistics and selling price estimates and is recognised as
accrued income. This estimate is not considered to be a key
source of estimation uncertainty because historical experience has
demonstrated that these estimates are materially accurate based on
the subsequent billings and settlements.
Where contracts for the sale of electricity and
gas are held, revenue is recognised in line with the progress
of the contracts.
The revenue recognised for fixed price
contracts is based on the input method. Revenue is recognised based
on the costs incurred and the estimated margin to be obtained over
the life of the contract. For variable price contracts revenue is
recognised based on the output method. Revenue is recognised based
on the volume supplied and the contracted price. Assumptions are
applied consistently but third-party costs can vary, therefore
actual outcomes may vary from initial estimates.
|
EBRS and EBDS
income (Customers)
|
The UK Government introduced the EBDS running
from 1 April 2023 to 31 March 2024. Under this scheme, energy
supplied to eligible non-domestic customers will have a discount
applied to each unit of electricity and gas. Certain customers may
be eligible for higher levels of support dependent on the sector in
which they operate. The discount provided can then be claimed back
from the UK Government by the supplier.
The EBDS replaced the EBRS which supported
non-domestic customers between 1 October 2022 and 31 March 2023.
Under the EBRS, energy supplied to non-domestic customers in this
period had a discount applied for the customer under the scheme to
cap their energy tariff. The discount provided could then be
claimed back from the UK Government by the supplier.
Payment is due 10 days post submission of a
claim, which typically occurs monthly.
|
|
The discounted price of electricity and gas
supplied under both the EBRS and EBDS is recognised in revenue as
it is supplied. The amount claimed back from the UK Government
is recognised within revenue over the same period as the underlying
discounted revenue it relates to is recognised.
The revenue received from the UK Government is
included in the EBRS and EBDS income line in the table below. The
Group does not recognise any additional revenue from the scheme
than it would have done had it not been introduced.
|
Renewable
certificate sales
The generation and sale of renewable
certificates, primarily ROCs and REGOs, is a key driver of the
Group's financial performance.
The Renewables Obligation (RO) scheme places an
obligation on electricity suppliers to source an increasing
proportion of their electricity from renewable sources. Under the
RO scheme, ROCs are issued to generators of renewable electricity
which are then sold bilaterally to counterparties, including
suppliers, to demonstrate that they have fulfilled their
obligations under the RO scheme. ROCs are managed in compliance
periods (CPs), running from April to March annually. CP1 commenced
in April 2002. At 31 December 2023 the Group is operating in
CP22.
To meet its obligations a supplier can either
submit ROCs or pay the buy-out price at the end of the CP. The
buy-out price rises annually in line with the UK Retail Price Index
(RPI). The buy-out price for CP22 is £59.01 (2022: CP21 £52.88).
ROCs are typically procured in arm's-length transactions with
renewable generators at a market price slightly lower than the
buy-out price for that CP. At the end of the CP, the amounts
collected from suppliers paying the buy-out price form the recycle
fund, which is distributed on a pro-rata basis to the suppliers who
presented ROCs during the CP.
The financial benefit of a ROC recognised in the
Consolidated income statement at the point of generation is
comprised of two parts: the expected value to be obtained in a sale
transaction with a third-party supplier relating to the buy-out
price, and the expected value of the recycle fund benefit to be
received at the end of the CP. During the year, the Group also made
sales and related purchases of ROCs to help optimise its working
capital position.
External sales of ROCs in the table below
includes £583.3 million of such sales (2022: £604.5 million), with
a similar value reflected in cost of sales.
REGOs are certificates that enable suppliers to
prove that energy supplied to their customers came from a renewable
source. One REGO is issued to a generator for every MWh of
renewable energy they generate. The primary use of REGOs is for the
Fuel Mix Disclosure that requires licensed electricity suppliers to
disclose to potential and existing customers the mix of fuels used
to generate the electricity supplied. REGOs are managed in
compliance periods (CPs), running from April to March annually. CP1
commenced in April 2002. At 31 December 2023 the Group is
operating in CP22.
The financial benefit of a REGO is recognised in
the Consolidated income statement at the point of generation based
on the expected value to be obtained in a sale transaction with a
third-party supplier. If the Group has already agreed sales
contracts covering the REGOs generated in a period, the expected
value is recognised at the point of generation based on the
contracted price. The expected value of REGOs not covered by agreed
sales contracts are recognised at the point of generation based on
published third-party market price assessments.
CfD
income/payment
The income/payment is calculated by reference to
a strike price per MWh. The base year for the strike price was 2012
and it increases each year in line with the UK Consumer Price Index
(CPI) and changes in system balancing costs. The strike price at
31 December 2023 was £132.47 per MWh (2022:
£126.37).
When market prices (based on average traded
prices in the preceding season) are above or below the strike
price, the Group makes an additional payment to or receives
additional income from LCCC equivalent to the difference between
that market power price and the strike price, for each MWh produced
from the relevant generating unit. Such payments/receipts are in
addition to amounts received from the sale of the associated power
in the wholesale market.
Gas
sales
To support the Group's ambition to be carbon
negative by 2030, a decision was made in January 2023 to phase out
the Group's gas supply contracts in the Customers business. Having
already ceased acquiring new gas customers, following internal
processes and a regulatory driven 60-day grace period, no renewal
contracts have been offered since May 2023. It is anticipated that
the portfolio will be fully phased out by 2027.
Further analysis of revenue for the year ended
31 December 2023 is provided in the table below:
|
Year ended 31 December
2023
|
External
£m
|
Inter-segment
£m
|
Total
£m
|
Pellet
Production
|
|
|
|
Pellet sales
|
391.3
|
424.6
|
815.9
|
Other income
|
6.5
|
-
|
6.5
|
Total Pellet
Production
|
397.8
|
424.6
|
822.4
|
Generation
|
|
|
|
Electricity sales
|
1,600.3
|
3,817.2
|
5,417.5
|
Renewable certificate sales
|
842.6
|
434.8
|
1,277.4
|
CfD payment
|
(63.0)
|
-
|
(63.0)
|
Ancillary services
|
55.4
|
-
|
55.4
|
Other income
|
51.0
|
48.7
|
99.7
|
Total
Generation
|
2,486.3
|
4,300.7
|
6,787.0
|
Customers
|
|
|
|
Electricity and gas sales
|
4,554.4
|
-
|
4,554.4
|
EBRS and EBDS income
|
365.8
|
-
|
365.8
|
Renewable certificate sales
|
37.9
|
-
|
37.9
|
Other income
|
0.2
|
-
|
0.2
|
Total
Customers
|
4,958.3
|
-
|
4,958.3
|
Elimination of
inter-segment sales
|
-
|
(4,725.3)
|
(4,725.3)
|
Total
consolidated revenue in Adjusted results
|
7,842.4
|
-
|
7,842.4
|
Certain remeasurements
|
282.9
|
-
|
282.9
|
Total
consolidated revenue in Total results
|
8,125.3
|
-
|
8,125.3
|
Revenue recognised in Adjusted results of
£7,842.4 million differs from revenue recognised in Total results
of £8,125.3 million due to certain remeasurements gains of £282.9
million (2022: losses of £383.9 million), comprised of gains and
losses on derivative contracts that are used to manage risk
exposures associated with the Group's revenue, not designated into
hedge accounting relationships under IFRS 9.
Revenue recognised in the period that was
included within contract liabilities at the start of the year was
£28.5 million (2022: £6.6 million).
Revenue recognised in the period from
performance obligations satisfied or partly satisfied in the
previous period was £nil (2022: £nil).
The following is an analysis of the Group's
revenues for the year ended 31 December 2022:
|
Year
ended 31 December 2022
|
External
£m
|
Inter-segment
£m
|
Total
£m
|
Pellet
Production
|
|
|
|
Pellet sales
|
369.3
|
425.2
|
794.5
|
Other income
|
7.9
|
0.2
|
8.1
|
Total Pellet
Production
|
377.2
|
425.4
|
802.6
|
Generation
|
|
|
|
Electricity sales
|
2,633.1
|
3,293.3
|
5,926.4
|
Renewable certificate sales
|
851.5
|
426.0
|
1,277.5
|
CfD payment
|
(45.7)
|
-
|
(45.7)
|
Ancillary services
|
73.0
|
-
|
73.0
|
Other income
|
127.0
|
-
|
127.0
|
Total
Generation
|
3,638.9
|
3,719.3
|
7,358.2
|
Customers
|
|
|
|
Electricity and gas sales
|
3,853.1
|
-
|
3,853.1
|
EBRS Income
|
289.2
|
-
|
289.2
|
Other income
|
0.8
|
-
|
0.8
|
Total
Customers
|
4,143.1
|
-
|
4,143.1
|
Elimination of
inter-segment sales
|
-
|
(4,144.7)
|
(4,144.7)
|
Total
consolidated revenue in Adjusted results
|
8,159.2
|
-
|
8,159.2
|
Certain remeasurements
|
(383.9)
|
-
|
(383.9)
|
Total
consolidated revenue in Total results
|
7,775.3
|
-
|
7,775.3
|
The Group is eligible for, and applies, the
practical expedient available under IFRS 15 and has not disclosed
information related to the transaction price allocated to remaining
performance obligations. The right to receive consideration from a
customer is at an amount that corresponds directly with the value
to the customer of the Group's performance completed to
date.
3.
Current and deferred tax
The tax charge (2022: credit) includes both
current and deferred tax. It reflects the estimated tax on the
profit before tax for the Group for the year ended 31 December
2023 and the movement in the deferred tax balance in the year, so
far as it relates to items recognised in the Consolidated income
statement, in line with IAS 12.
Accounting
policy
Current tax includes UK corporation tax,
corporate income tax in Canada and US income tax. It is based on
the taxable profit or loss for the year in the relevant
jurisdiction. Taxable profit or loss differs from profit or loss
before tax as reported in the Consolidated income statement,
because it excludes items of income or expenditure that are either
taxable or deductible in other years or never taxable or
deductible. The Group's liability (or asset) for current tax is
provided at amounts expected to be paid (or recovered) using the
tax rates and laws that have been enacted or substantively enacted
by the reporting date.
A provision is made for those matters for which
the tax determination is uncertain, but it is considered probable
that there will be a future outflow of funds to a tax authority.
The provisions are measured at the best estimate of the amount
expected to become payable. The assessment is based on the
judgement of tax professionals within the Group supported by
previous experience in respect of such activities and in certain
cases is based on specialist third-party tax advice. No uncertain
tax provisions have been recognised in the current or prior
year.
Deferred tax is the tax expected to be payable
or recoverable on differences between the carrying amounts of
assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available
against which deductible temporary differences can be
utilised.
Current and deferred taxes are credited or
charged against profit or loss in the Consolidated income
statement, except when they relate to items that are recognised in
other comprehensive income or directly in equity, in which case the
current and deferred taxes are recognised in the Consolidated
statement of comprehensive income or directly in the Consolidated
statement of changes in equity respectively.
The Group has utilised the relief available
under the Research and Development Expenditure Credit (RDEC)
regime. Under this regime, research and development tax credits are
accounted for as development grants in line with IAS 20 and are
recorded in operating profit within the Consolidated income
statement. The credit is subject to corporation tax with the
corresponding receivable offset against total corporation tax
payable.
In accounting for tax, the Group makes
assumptions regarding the treatment of items of income and
expenditure for tax purposes. The Group believes that these
assumptions are reasonable, based on prior experience and
consultation with advisers where deemed necessary. These
assumptions are consistent with other assumptions used in these
Consolidated financial statements. Full provision is made for
deferred tax at the rates of tax prevailing at the reporting date
unless future rates have been substantively enacted. Deferred tax
assets are recognised where it is considered more likely than not
that they will be recovered. The recoverability of the deferred tax
asset is considered an estimate as it relies on the future
profitability of the Group's businesses. See table below for a
breakdown of the net deferred tax asset or liability position for
each jurisdiction.
|
Year
ended 31 December
|
2023
£m
|
2022
£m
|
Total tax
(charge)/credit comprises:
|
|
|
Current tax
|
|
|
- UK tax
|
(186.5)
|
(66.0)
|
- Overseas tax
|
(1.6)
|
-
|
- Adjustments in respect of prior
periods
|
2.0
|
1.9
|
Deferred tax
|
|
|
- Before impact of tax rate changes
|
(46.7)
|
61.9
|
- Adjustments in respect of prior
periods
|
0.3
|
(0.1)
|
- Effect of changes in tax rate
|
(3.0)
|
6.7
|
Total tax
(charge)/credit
|
(235.5)
|
4.4
|
|
Year
ended 31 December
|
2023
£m
|
2022
£m
|
Tax
(charged)/credited on items recognised in other comprehensive
income:
|
|
|
Deferred tax on remeasurement of defined
benefit pension scheme surplus
|
7.2
|
6.1
|
Deferred tax on cash flow hedges
|
(130.7)
|
(5.6)
|
Deferred tax on cost of hedging
|
(1.9)
|
2.2
|
Total tax
(charge)/credit
|
(125.4)
|
2.7
|
|
|
|
|
Year
ended 31 December
|
2023
£m
|
2022
£m
|
Tax credited
on items released directly from equity:
|
|
|
Current tax on share-based payments
|
6.9
|
-
|
Deferred tax on cost of hedging
|
9.0
|
7.2
|
Deferred tax on cash flow hedges
|
10.9
|
4.8
|
Deferred tax on share-based payments
|
(2.4)
|
7.4
|
Total tax
credit
|
24.4
|
19.4
|
UK corporation tax is the main income tax
applicable on the Group's taxable profits and is calculated at
23.5% (2022: 19.0%) of the assessable profit or loss for the year.
This follows the rate increase to 25.0% from 1 April 2023 that was
included within the Finance Bill 2021.
Due to the Group's overseas operations, the US
income tax rate of 21.0% (2022: 21.0%) and the Canadian corporate
income tax rate of 27.0% (2022: 27.0%) are also relevant to the
Group's UK corporation tax charge.
The effective tax rate for the full year, before
the impact of changes in tax rates, is higher than the standard
corporation tax rate applicable in the UK, principally due to the
introduction of the non-deductible Electricity Generator Levy from
1 January 2023. The primary current tax rate benefits arise from
research and development credits, UK Patent Box claims and the UK
super-deduction introduced in the Finance Act 2021, which allowed
for a 130% in-year deduction for tax purposes against the cost of
qualifying capital expenditure on plant and machinery incurred
between 1 April 2021 and 31 March 2023.
Drax Power Limited was granted a patent to
protect certain intellectual property it owns and which attaches to
the technology developed to manage the combustion process in
generating electricity from biomass. Under UK tax legislation, the
company is entitled to apply a lower tax rate of 10% to profits
derived from utilisation of the patented technology.
The Group tax charge for the year can be
reconciled to the profit before tax as follows:
|
Year ended 31 December
2023
|
|
Year
ended 31 December 2022
|
Adjusted
results
£m
|
Exceptional
items
and certain
remeasurements
£m
|
Total
results
£m
|
|
Adjusted
results
£m
|
Exceptional
items
and
certain
remeasurements
£m
|
Total
results
£m
|
Profit/(loss)
before tax
|
665.2
|
131.2
|
796.4
|
|
405.4
|
(327.3)
|
78.1
|
Profit/(loss) before tax multiplied by the rate
of corporation tax in the UK of 23.5% (2022: 19.0%)
|
156.3
|
30.8
|
187.1
|
|
77.0
|
(62.2)
|
14.8
|
Effects
of:
|
|
|
|
|
|
|
|
Adjustments in respect of prior
periods
|
(2.3)
|
-
|
(2.3)
|
|
(1.8)
|
-
|
(1.8)
|
Expenses not deductible for tax
purposes
|
5.2
|
6.5
|
11.7
|
|
4.5
|
-
|
4.5
|
Electricity Generator Levy
|
48.1
|
-
|
48.1
|
|
-
|
-
|
-
|
Impact of tax rate change
|
0.6
|
2.4
|
3.0
|
|
2.9
|
(9.6)
|
(6.7)
|
Share-based payments recognised in
equity
|
8.1
|
-
|
8.1
|
|
-
|
-
|
-
|
Difference in overseas tax rates
|
(0.7)
|
-
|
(0.7)
|
|
(1.3)
|
-
|
(1.3)
|
UK Patent Box benefit
|
(17.4)
|
-
|
(17.4)
|
|
(9.6)
|
-
|
(9.6)
|
Tax effect of RDEC
|
(0.9)
|
-
|
(0.9)
|
|
(0.8)
|
-
|
(0.8)
|
UK super-deduction
|
(1.2)
|
-
|
(1.2)
|
|
(3.5)
|
-
|
(3.5)
|
Total tax
charge/(credit)
|
195.8
|
39.7
|
235.5
|
|
67.4
|
(71.8)
|
(4.4)
|
The movements in deferred tax assets and
liabilities during each year are shown below.
|
Financial
instruments
£m
|
Accelerated
capital
allowances
£m
|
Non-trade
losses
£m
|
Intangible
assets
£m
|
Trade
losses
£m
|
Other
liabilities
£m
|
Other
assets
£m
|
Total
£m
|
At
1 January 2022
|
38.8
|
(292.6)
|
2.3
|
(19.9)
|
60.0
|
(18.7)
|
33.5
|
(196.6)
|
Credited/(charged) to the income
statement
|
77.3
|
(24.9)
|
(1.8)
|
7.0
|
15.7
|
(20.7)
|
16.0
|
68.6
|
Credited to other comprehensive income
in respect of actuarial gains
|
-
|
-
|
-
|
-
|
-
|
6.1
|
-
|
6.1
|
Charged to other comprehensive income
in respect of cash flow hedges
|
(5.6)
|
-
|
-
|
-
|
-
|
-
|
-
|
(5.6)
|
Credited to other comprehensive income
in respect of cost of hedging
|
2.2
|
-
|
-
|
-
|
-
|
-
|
-
|
2.2
|
Credited to equity in respect of cash flow
hedges
|
4.8
|
-
|
-
|
-
|
-
|
-
|
-
|
4.8
|
Credited to equity in respect of cost
of hedging
|
7.2
|
-
|
-
|
-
|
-
|
-
|
-
|
7.2
|
Credited to equity in respect of share-based
payments
|
-
|
-
|
-
|
-
|
-
|
-
|
7.4
|
7.4
|
Impact of acquisition
|
-
|
(0.8)
|
-
|
-
|
-
|
-
|
-
|
(0.8)
|
Effect of changes in foreign exchange
rates
|
-
|
(3.0)
|
-
|
-
|
4.4
|
-
|
1.0
|
2.4
|
At 1 January
2023
|
124.7
|
(321.3)
|
0.5
|
(12.9)
|
80.1
|
(33.3)
|
57.9
|
(104.3)
|
(Charged)/credited to the income
statement
|
(51.2)
|
9.0
|
(0.5)
|
12.3
|
(21.0)
|
(0.6)
|
2.6
|
(49.4)
|
Credited to other comprehensive income
in respect of actuarial gains
|
-
|
-
|
-
|
-
|
-
|
7.2
|
-
|
7.2
|
Charged to other comprehensive income
in respect of cash flow hedges
|
(130.7)
|
-
|
-
|
-
|
-
|
-
|
-
|
(130.7)
|
Charged to other comprehensive income
in respect of cost of hedging
|
(1.9)
|
-
|
-
|
-
|
-
|
-
|
-
|
(1.9)
|
Credited to equity in respect of cash flow
hedges
|
10.9
|
-
|
-
|
-
|
-
|
-
|
-
|
10.9
|
Credited to equity in respect of cost of
hedging
|
9.0
|
-
|
-
|
-
|
-
|
-
|
-
|
9.0
|
Charged to equity in respect of
share‑based
payments
|
-
|
-
|
-
|
-
|
-
|
-
|
(2.4)
|
(2.4)
|
Impact of acquisition
|
-
|
-
|
-
|
(1.3)
|
-
|
-
|
-
|
(1.3)
|
Effect of changes in foreign exchange
rates
|
-
|
1.8
|
-
|
-
|
(2.5)
|
(0.1)
|
(0.5)
|
(1.3)
|
At
31 December 2023
|
(39.2)
|
(310.5)
|
-
|
(1.9)
|
56.6
|
(26.8)
|
57.6
|
(264.2)
|
Deferred tax
balances (after offset) for financial reporting
purposes:
|
|
|
|
|
|
|
|
|
Net Canadian
deferred tax asset at 31 December 2023
|
-
|
(18.8)
|
-
|
0.4
|
16.8
|
(0.2)
|
28.2
|
26.4
|
Net US
deferred tax asset at 31 December 2023
|
-
|
(21.9)
|
-
|
-
|
39.8
|
-
|
8.6
|
26.5
|
Net UK
deferred tax liability at 31 December 2023
|
(39.2)
|
(269.8)
|
-
|
(2.3)
|
-
|
(26.6)
|
20.8
|
(317.1)
|
Net Canadian deferred tax asset at
31 December 2022
|
-
|
(49.6)
|
-
|
0.2
|
27.1
|
(1.0)
|
32.7
|
9.4
|
Net US deferred tax asset at 31 December
2022
|
-
|
(30.6)
|
-
|
-
|
53.0
|
-
|
5.5
|
27.9
|
Net UK deferred tax liability at
31 December 2022
|
124.7
|
(241.1)
|
0.5
|
(13.1)
|
-
|
(32.3)
|
19.7
|
(141.6)
|
Deferred tax assets and liabilities are offset
where the Group has both a legally enforceable right to offset the
recognised amounts and the intention to settle on a net basis,
otherwise they are shown separately in the Consolidated balance
sheet. Within the above trade losses deferred tax asset of £56.6
million (2022: £80.1 million) there is £39.8 million (2022: £53.0
million) in relation to losses in the US Pellet Production
business. The remaining £16.8 million relates to losses of the
Canadian Pellet Production business (2022: £27.1
million).
On 31 August 2023 the Group acquired BMM Energy
Solutions Limited, a UK-based electric vehicle charge point
installer. A deferred tax liability of £1.3 million has been
recognised on customer relationships included within this
acquisition, as noted above in the 'impact of acquisition' line.
This liability will unwind as the intangible asset is
amortised.
The future expected reversal of accelerated
capital allowances and other timing differences, coupled with the
profitability (inclusive of the impact of transfer pricing
adjustments), stable output and forecast improvement in operational
performance, mean that the US and Canadian businesses expect to
generate sufficient profits in the short to medium term against
which to utilise the deferred tax assets. The estimates used when
assessing the future profitability of the US and Canadian
businesses have been approved by the Board and are consistent with
estimates used in the going concern assessment and in the Viability
statement.
As at 31 December 2023 the Group held £78.8
million (2022: £79.2 million) of UK capital losses available for
offset against future chargeable gains. These losses are
unrecognised for deferred tax purposes as the Group does not
currently expect UK taxable gains to arise that would be eligible
to offset against these losses.
The Group is within scope of the Organisation
for Economic Co-operation and Development's (OECD's) Global
Anti-Base Erosion Rules, which provide for an internationally
co-ordinated system of taxation to ensure that large multinational
groups pay a minimum level of corporate income tax in countries in
which they operate, referred to as Pillar Two. The legislation
implementing the rules in the UK was substantively enacted on 20
June 2023 and will apply to the Group from the financial year
ending 31 December 2024 onwards. The Group has applied the
temporary exemption under IAS 12 in relation to the accounting for
deferred taxes arising from the implementation of the Pillar Two
rules, so that the Group neither recognises nor discloses
information about deferred tax assets and liabilities related to
Pillar Two. Based on an initial review of 2023 and the medium term
forecasts up to and including the year ending 31 December 2026, the
Group would fall within the Transitional Country by Country
Reporting Safe Harbour, such that the expected top up tax payable
over this period under the Pillar Two rules is expected to be
£nil.
The Group continues to monitor developments in
the UK and outside of the UK and will undertake a detailed review
in 2024 to ensure ongoing compliance with its administrative
obligations under these rules.
4.
Alternative performance measures
The alternative performance measures (APMs)
glossary to these Consolidated financial statements provides
details of all APMs used, each APM's closest IFRS equivalent, the
reason why the APM is used by the Group and a definition of how
each APM is calculated.
The Group presents Adjusted results in the
Consolidated income statement. Management believes that this
approach is useful as it provides a clear and consistent view of
underlying trading performance. Exceptional items and certain
remeasurements are excluded from Adjusted results and are presented
in a separate column in the Consolidated income statement. The
Group believes that this presentation provides useful information
about the financial performance of the business and is consistent
with the way the Board and Executive management assess the
performance of the business.
The Group has a policy and framework for the
determination of transactions to present as exceptional.
Exceptional items are excluded from Adjusted results as they are
transactions that are deemed to be one-off or unlikely to reoccur
in future years due to their nature, size, the expected frequency
of similar events or the commercial context. By excluding these
amounts this provides users of the Consolidated financial
statements with a more representative view of the results of the
Group and enables comparisons with other reporting periods as it
excludes amounts from activities or transactions that are not
likely to reoccur. All transactions presented as exceptional are
approved by the Audit Committee.
In these Consolidated financial statements, the
following transactions have been designated as exceptional items
and presented separately:
· Impairment
charges related to the Opus Energy CGU (2023,
Customers).
· Proceeds from a
legal settlement relating to a supplier's failure to perform under
their contract (2023, Customers).
· Change in the
fair value of contingent consideration (2023,
Generation).
· Impact of the
UK tax rate change on deferred tax balances (2023, Generation and
Customers; 2022, Generation and Customers). See note 3 for further
information.
· Impairment
charges incurred on the application of the Group's new accounting
policy for Software as a Service (SaaS) costs, consistent with the
IFRIC agenda decision (2022, All segments), and on costs associated
with the Customers billing system (2022, Customers).
Certain remeasurements comprise gains or losses
on derivative contracts to the extent that those contracts do not
qualify for hedge accounting, or hedge accounting is not effective,
and those gains or losses are either i) unrealised and relate to
derivative contracts with a maturity in future periods, or ii) are
realised in relation to the maturity of derivative contracts in the
current period. Gains and losses on derivative contracts prior to
maturity generally reflect the difference between the contracted
price and the current market price, which management does not
believe provides meaningful information as the Group is not
entering contracts with the intention of creating value from
changes in market prices. The Group is entering forward contracts
as economic hedges to secure prices and rates, and lock in value
for its future expected pellet production, generation or energy
supply activities. The effect of excluding certain remeasurements
from Adjusted results is that commodity sales and purchases are
recognised in the period they are intended to hedge at their
contracted prices i.e. at the all-in-hedged amount paid or received
in respect of the delivery of the commodity in question. It also
results in the total impact of financial contracts being recognised
in the period they are intended to hedge. Management believes this
better reflects the performance of the business as it more
accurately represents the intention for entering derivative
contracts.
2022 saw high prices and volatility in financial
and commodity markets. As prices increased this resulted in
significant movements in the remeasurement gains and losses on
certain derivative financial instruments which do not qualify for
hedge accounting, or where hedge accounting is ineffective, as
shown in the table below, principally relating to gas, certain
foreign currency contracts, inflation and oil. In the current year
prices have reduced compared to the 2022 highs, and therefore
certain gains and losses recognised in the prior year have
reversed.
|
Year
ended 31 December
|
2023
£m
|
2022
£m
|
Exceptional
items:
|
|
|
Impairment of non-current assets
|
(69.1)
|
(24.9)
|
Net credit from legal claim
|
13.7
|
-
|
Change in fair value of contingent
consideration
|
(18.2)
|
-
|
Exceptional
items included within operating profit and profit before
tax
|
(73.6)
|
(24.9)
|
Tax on exceptional items
|
10.8
|
4.7
|
Impact of tax rate change
|
0.7
|
(9.8)
|
Exceptional
items after tax
|
(62.1)
|
(30.0)
|
Certain
remeasurements:
|
|
|
Net fair value remeasurements on derivative
contracts included in revenue
|
70.7
|
(441.4)
|
Net remeasurements realised on maturity of
derivative contracts included in revenue
|
228.6
|
107.7
|
Net hedge ineffectiveness reclassified to
profit or loss included in revenue
|
(16.4)
|
(50.2)
|
Net fair value remeasurements on derivative
contracts included in cost of sales
|
(127.0)
|
32.6
|
Net remeasurements realised on maturity of
derivative contracts included in cost of sales
|
44.3
|
53.1
|
Certain
remeasurements included within operating profit
|
200.2
|
(298.2)
|
Net remeasurements on maturity of derivative
contracts included in interest payable and similar
charges
|
(0.3)
|
(0.4)
|
Net fair value remeasurements on derivative
contracts included in foreign exchange gains/(losses)
|
4.9
|
(3.8)
|
Certain
remeasurements included in profit before tax
|
204.8
|
(302.4)
|
Tax on certain remeasurements
|
(48.1)
|
57.5
|
Impact of tax rate change
|
(3.1)
|
19.4
|
Certain
remeasurements after tax
|
153.6
|
(225.5)
|
|
|
|
Reconciliation
of profit after tax:
|
|
|
Adjusted
profit after tax
|
469.4
|
338.0
|
Exceptional items after tax
|
(62.1)
|
(30.0)
|
Certain remeasurements after tax
|
153.6
|
(225.5)
|
Total profit
after tax
|
560.9
|
82.5
|
For each item designated as exceptional or as a
certain remeasurement, the table below summarises the impact of the
item on Adjusted and Total profit after tax, Basic EPS and net cash
flow from operating activities.
|
Year ended 31 December
2023
|
Revenue
£m
|
Gross
profit
£m
|
Operating
profit
£m
|
Profit
before tax
£m
|
Tax
(charge)/credit
£m
|
Profit/(loss)
for the
period
£m
|
Basic
earnings/(loss)
per share
Pence
|
Net cash
from
operating
activities
£m
|
Total results
IFRS measure
|
8,125.3
|
1,953.6
|
908.2
|
796.4
|
(235.5)
|
560.9
|
142.8
|
835.6
|
Certain
remeasurements:
|
|
|
|
|
|
|
|
|
Net fair value remeasurement on derivative
contracts
|
(282.9)
|
(200.2)
|
(200.2)
|
(204.8)
|
48.1
|
(156.7)
|
(39.7)
|
-
|
Impact of tax rate change
|
-
|
-
|
-
|
-
|
3.1
|
3.1
|
0.8
|
-
|
Exceptional
items:
|
|
|
|
|
|
|
|
|
Impairment of non-current assets
|
-
|
-
|
69.1
|
69.1
|
(13.5)
|
55.6
|
14.1
|
-
|
Proceeds from legal claim
|
-
|
-
|
(13.7)
|
(13.7)
|
2.7
|
(11.0)
|
(2.8)
|
(9.3)
|
Change in fair value of contingent
consideration
|
-
|
-
|
18.2
|
18.2
|
-
|
18.2
|
4.6
|
-
|
Impact of tax rate change
|
-
|
-
|
-
|
-
|
(0.7)
|
(0.7)
|
(0.2)
|
-
|
Total
|
(282.9)
|
(200.2)
|
(126.6)
|
(131.2)
|
39.7
|
(91.5)
|
(23.2)
|
(9.3)
|
Adjusted
results totals
|
7,842.4
|
1,753.4
|
781.6
|
665.2
|
(195.8)
|
469.4
|
119.6
|
826.3
|
|
Year
ended 31 December 2022
|
Revenue
£m
|
Gross
profit
£m
|
Operating
profit
£m
|
Profit
before
tax
£m
|
Tax
credit/(charge)
£m
|
Profit/(loss) for the
period
£m
|
Basic
earnings/(loss) per share
Pence
|
Net cash
from
operating
activities
£m
|
Total results
IFRS measure
|
7,775.3
|
1,023.3
|
146.3
|
78.1
|
4.4
|
82.5
|
21.3
|
207.7
|
Certain
remeasurements:
|
|
|
|
|
|
|
|
|
Net fair value remeasurement on derivative
contracts
|
383.9
|
298.2
|
298.2
|
302.4
|
(57.5)
|
244.9
|
61.2
|
-
|
Impact of tax rate change
|
-
|
-
|
-
|
-
|
(19.4)
|
(19.4)
|
(4.8)
|
-
|
Exceptional
items:
|
|
|
|
|
|
|
|
|
Impairment of non-current assets
|
-
|
-
|
24.9
|
24.9
|
(4.7)
|
20.2
|
5.0
|
-
|
Impact of tax rate change
|
-
|
-
|
-
|
-
|
9.8
|
9.8
|
2.4
|
-
|
Total
|
383.9
|
298.2
|
323.1
|
327.3
|
(71.8)
|
255.5
|
63.8
|
-
|
Adjusted
results totals
|
8,159.2
|
1,321.5
|
469.4
|
405.4
|
(67.4)
|
338.0
|
85.1
|
207.7
|
A cost of £204.6 million has been recognised in
relation to EGL for the year. The cost has been recognised within
the Electricity Generator Levy line in the Consolidated income
statement. The liability for EGL has been recognised within Trade
and other payables and contract liabilities within the Consolidated
balance sheet.
Both Adjusted EBITDA including EGL and Adjusted
EBITDA excluding EGL are presented below. Management believes that
providing both measures provides useful information, as it enables
readers to compare, on a consistent basis, the current period
Adjusted EBITDA to prior periods in which the EGL was not
applicable, and also to see the impact of EGL, which is relevant
for comparison in future periods.
|
Year ended 31 December
2023
|
Attributable
to
|
Owners of
the
parent
company
£m
|
Non-controlling
interests
£m
|
Total
£m
|
Adjusted
operating profit
|
782.9
|
(1.3)
|
781.6
|
Depreciation and amortisation
|
223.7
|
1.3
|
225.0
|
Other gains
|
(0.7)
|
-
|
(0.7)
|
Share of losses from associates
|
1.6
|
-
|
1.6
|
Impairment losses on non-current
assets
|
1.7
|
-
|
1.7
|
Adjusted
EBITDA including Electricity Generator Levy
|
1,009.2
|
-
|
1,009.2
|
Electricity Generator Levy
|
204.6
|
-
|
204.6
|
Adjusted
EBITDA excluding Electricity Generator Levy
|
1,213.8
|
-
|
1,213.8
|
|
Year
ended 31 December 2022
|
Attributable to
|
Owners of
the
parent
company
£m
|
Non-controlling interests
£m
|
Total
£m
|
Adjusted
operating profit
|
472.0
|
(2.6)
|
469.4
|
Depreciation and amortisation
|
237.2
|
2.2
|
239.4
|
Other losses
|
5.7
|
0.1
|
5.8
|
Share of profits from associates
|
(0.5)
|
-
|
(0.5)
|
Impairment losses on non-current
assets
|
16.6
|
-
|
16.6
|
Adjusted
EBITDA
|
731.0
|
(0.3)
|
730.7
|
|
Year
ended 31 December
|
2023
£m
|
2022
£m
|
Segment
Adjusted EBITDA excluding Electricity Generator
Levy:
|
|
|
Pellet Production
|
88.9
|
133.7
|
Generation
|
1,138.1
|
695.5
|
Customers
|
71.8
|
25.8
|
Innovation, capital projects and
other
|
(78.1)
|
(113.6)
|
Intra-group eliminations
|
(6.9)
|
(10.4)
|
Total Adjusted
EBITDA excluding Electricity Generator Levy
|
1,213.8
|
731.0
|
Electricity
Generator Levy(1)
|
(204.6)
|
-
|
Total Adjusted
EBITDA including Electricity Generator Levy
|
1,009.2
|
731.0
|
(1) The Electricity Generator
Levy relates wholly to the Generation segment, therefore Adjusted
EBITDA including Electricity Generator Levy for the Generation
segment is £933.5 million.
Net
debt
Net debt is calculated by taking the Group's
borrowings, adjusting for the impact of associated hedging
instruments, and subtracting cash and cash equivalents. Net debt
excludes the share of borrowings and cash and cash equivalents
attributable to non-controlling interests.
Borrowings includes external financial debt,
such as loan notes, term loans and amounts drawn in cash under
revolving credit facilities (RCFs), net of any deferred finance
costs. Borrowings does not include other financial liabilities such
as pension obligations, trade and other payables, lease liabilities
calculated in accordance with IFRS 16 and working capital
facilities (such as credit cards and deferred letters of credit)
linked directly to specific payables that provide short extension
of payment terms of less than 12 months (see note 7). The Group
does not include balances related to supply chain financing in Net
debt as there are no changes to the Group's payment terms under
this arrangement, nor would there be if the arrangement was to
cease. Net debt includes the impact of any cash collateral receipts
from counterparties or cash collateral posted to
counterparties.
The Group does not include lease liabilities,
calculated in accordance with IFRS 16, in the definition of Net
debt. This reflects the nature of the contracts included in this
balance which are predominantly entered into for operating purposes
rather than as a way to finance the purchase of an asset. The
exclusion of lease liabilities from the calculation of Net debt is
also consistent with the Group's covenant reporting
requirements.
The Group has entered into cross-currency
interest rate swaps, fixing the sterling value of the principal
repayments and interest in respect of the Group's US dollar (USD)
and euro (EUR) denominated debt. The Group has also entered a fixed
rate foreign exchange forward to fix the sterling value of the
principal repayment of the Canadian (CAD) denominated debt. For the
purpose of calculating Net debt, USD, EUR and CAD balances are
translated at the hedged rate, rather than the rate prevailing at
the reporting date, which impacts the carrying amount of the
Group's borrowings. See the APMs glossary for further details on
the calculation of Net debt.
Cash collateral is sometimes paid or received in
relation to the Group's commodity and treasury trading activities.
When derivative positions are out of the money for the Group, cash
collateral may be required to be paid to the counterparty. When
derivative positions are in the money, cash collateral may be
received from counterparties. These positions reverse when
contracts are settled and the cash collateral is
returned.
At 31 December 2023, net cash postings of
£78.6 million had been made to counterparties (2022: £234.0
million) to support commodity hedging activity. Cash collateral
payments of £98.9 million (2022: £234.0 million) are recognised in
other receivables and £20.3 million (2022: £nil) of cash collateral
receipts are recognised in other payables. The decrease in cash
collateral payments is due to the settlement of trades from the
prior year as well as a reduction in commodity prices seen in the
power, gas and carbon markets. See note 7 for details on collateral
requirements the Group has met through its available non-cash
credit facilities.
The Group's definition of Net debt includes the
impact of cash collateral. In the table below, Net debt excluding
collateral is also presented and reconciled to Net debt.
|
As at
31 December
|
2023
£m
|
2022
£m
|
Borrowings
|
(1,425.3)
|
(1,440.9)
|
Cash and cash equivalents
|
379.5
|
238.0
|
Net cash and
borrowings
|
(1,045.8)
|
(1,202.9)
|
NCI's share of cash and cash equivalents in
non-wholly owned subsidiaries
|
(0.3)
|
(0.7)
|
Impact of hedging instruments
|
(37.8)
|
(2.4)
|
Net
debt
|
(1,083.9)
|
(1,206.0)
|
Net cash collateral posted
|
78.6
|
234.0
|
Net debt
excluding collateral
|
(1,005.3)
|
(972.0)
|
The table below reconciles Net debt in terms of
changes in these balances across the year:
|
Year ended
31 December
|
2023
£m
|
2022
£m
|
Net debt at 1
January
|
(1,206.0)
|
(1,108.0)
|
Increase/(decrease) in owners of the parent
company's share of cash and cash equivalents
|
146.3
|
(85.6)
|
Increase in borrowings
|
(19.8)
|
(8.6)
|
Effect of changes in foreign exchange
rates
|
31.0
|
(65.8)
|
Movement in the impact of hedging
instruments
|
(35.4)
|
62.0
|
Net debt at
31 December
|
(1,083.9)
|
(1,206.0)
|
The Group has a long-term target for Net debt to
Adjusted EBITDA including EGL of around 2.0 times.
|
As at
31 December
|
2023
|
2022
|
Adjusted EBITDA including EGL (£m)
|
1,009.2
|
731.0
|
Adjusted EBITDA excluding EGL (£m)
|
1,213.8
|
731.0
|
Net debt (£m)
|
(1,083.9)
|
(1,206.0)
|
Net debt excluding collateral (£m)
|
(1,005.3)
|
(972.0)
|
Net debt to
Adjusted EBITDA including EGL ratio
|
1.1
|
1.6
|
Net debt to
Adjusted EBITDA excluding EGL ratio
|
0.9
|
1.6
|
Cash and
committed facilities
The below table reconciles the Group's available
cash and committed facilities:
|
As at
31 December
|
2023
£m
|
2022
£m
|
Cash and cash equivalents
|
379.5
|
238.0
|
RCF available but not
utilised (1)
|
259.9
|
260.1
|
Liquidity facility available but not utilised
(2)
|
-
|
200.0
|
Total cash and
committed facilities
|
639.4
|
698.1
|
(1) The Group's
available balance on the RCF facility (includes £300 million and
C$10 million RCF) is reduced by letters of credit drawn under the
RCF. At 31 December 2023, £46.1 million letters of credit were
drawn (2022: £46.0 million).
(2) In December 2022,
the Group secured a new £200 million committed liquidity facility
with banks within its lending group. This facility provided an
additional source of liquidity to the Group's existing undrawn
RCFs, until December 2023. This facility was undrawn at 31 December
2022 and as at 31 December 2023 has matured.
Further commentary on total cash and committed
facilities is contained within the Financial review.
5.
Earnings per share
Earnings per share (EPS) represents the amount
of earnings (post-tax profit or losses) attributable to the
weighted average number of ordinary shares outstanding in the year.
Basic EPS is calculated by dividing the Group's earnings
attributable to owners of the parent company (profit or loss after
tax, excluding amounts attributable to non-controlling interests)
by the weighted average number of ordinary shares that were
outstanding during the year. Diluted EPS demonstrates the impact of
all outstanding share options that would vest on their future
maturity dates if the conditions at the end of the reporting period
were the same as those at the end of the vesting period (such as
those to be issued under employee share schemes), and the options
were exercised and treated as ordinary shares as at the reporting
date. Repurchased shares of 40.3 million (2022: 13.8 million) held
in the treasury shares reserve are not included in the weighted
average calculation of shares. See note 8 for further details on
the treasury shares reserve. For the purpose of calculating diluted
EPS, the weighted average calculation of shares excludes any share
options that would have an anti-dilutive impact.
|
Year
ended 31 December
|
2023
|
2022
|
Number of
shares (millions):
|
|
|
Weighted
average number of ordinary shares for the purposes of calculating
Basic earnings per share
|
393.8
|
400.4
|
Effect of dilutive potential ordinary shares
under share plans
|
9.3
|
14.0
|
Weighted
average number of ordinary shares for the purposes of calculating
Diluted earnings per share
|
403.1
|
414.4
|
|
Year
ended 31 December
|
2023
|
2022
|
Adjusted
results
|
Total
results
|
Adjusted
results
|
Total
results
|
Earnings per
share attributable to owners of the parent
company
|
|
|
|
|
Earnings - profit after tax (£m)
|
470.7
|
562.2
|
340.6
|
85.1
|
Earnings per share - Basic (pence)
|
119.6
|
142.8
|
85.1
|
21.3
|
Earnings per share - Diluted (pence)
|
116.8
|
139.5
|
82.2
|
20.5
|
6.
Dividends
|
Year
ended 31 December
|
|
Pence per
share
|
2023
£m
|
2022
£m
|
|
Amounts
recognised as distributions to equity holders in the year (based on
the number of shares outstanding at the record
date):
|
|
|
|
|
Interim dividend for the year ended 31 December
2023 paid on 3 October 2023
|
9.2
|
35.7
|
-
|
|
Final dividend for the year ended 31 December
2022 paid on 19 May 2023
|
12.6
|
50.6
|
-
|
|
Interim dividend for the year ended 31 December
2022 paid on 7 October 2022
|
8.4
|
-
|
33.7
|
|
Final dividend for the year ended 31 December
2021 paid on 13 May 2022
|
11.3
|
-
|
45.2
|
|
Total
distributions
|
|
86.3
|
78.9
|
|
|
|
|
|
| |
At the forthcoming Annual General Meeting, the
Board will recommend to shareholders that a resolution is passed to
approve payment of a final dividend for the year ended 31 December
2023 of 13.9 pence per share (equivalent to approximately £53.5
million) payable on 17 May 2024. The final dividend has not been
included as a liability as at 31 December 2023. This would bring
total dividends payable in respect of the 2023 financial year to
approximately £89.2 million.
The Group has a long-standing capital allocation
policy. This policy is based on a commitment to robust financial
metrics that underpin the Group's strong credit rating: investment
in the core business; paying a sustainable and growing dividend;
and returning surplus capital to shareholders. The Board is
confident that the dividend is sustainable and expects it to grow
as the implementation of the Group's strategy generates an
increasing proportion of stable earnings and cash flows. In
determining the rate of growth in dividends, the Board will take
account of future investment opportunities and the less predictable
cash flows from the Group's commodity-linked revenue
streams.
In future years, if there is a build-up of
capital in excess of the Group's investment needs, the Board will
consider the most appropriate mechanism to return this to
shareholders.
7.
Notes to the Consolidated cash flow statement
Accounting
policy
In accordance with IAS 7 the Group has elected
to classify cash flows from interest paid and interest received as
cash flows from operations, dividends paid as cash flows from
financing activities, and dividends received as cash flows from
investing activities. The interest repayment on lease
liabilities is included within interest paid, and the lease
principal repayment is presented within cash flows from financing
activities.
Cash generated
from operations
Cash generated from operations is the starting
point of the Group's Consolidated cash flow statement. The table
below makes adjustments for any non-cash accounting items to
reconcile the Group's net profit for the year to the amount of cash
generated from the Group's operations.
|
Year
ended 31 December
|
2023
£m
|
2022
£m
|
Profit for the
year
|
560.9
|
82.5
|
Adjustments
for:
|
|
|
Interest payable and similar charges
|
115.2
|
83.1
|
Interest receivable
|
(13.1)
|
(4.3)
|
Tax charge/(credit)
|
235.5
|
(4.4)
|
Research and development tax credits
|
(2.0)
|
(5.5)
|
Share of losses/(profits) from
associates
|
1.6
|
(0.5)
|
Depreciation of property, plant and
equipment
|
168.7
|
187.7
|
Amortisation of intangible assets
|
29.4
|
31.4
|
Depreciation of right-of-use assets
|
26.9
|
20.3
|
Impairment of non-current assets
|
70.8
|
41.5
|
Losses on disposal of fixed assets
|
2.6
|
5.5
|
Other losses
|
18.2
|
0.3
|
Certain remeasurements of derivative
contracts(1)
|
(222.0)
|
288.7
|
Non-cash charge for share-based
payments
|
13.9
|
9.6
|
Effect of changes in foreign exchange
rates
|
6.2
|
(2.2)
|
Operating cash
flows before movement in working capital
|
1,012.8
|
733.7
|
Changes in
working capital:
|
|
|
Decrease/(increase) in inventories
|
20.6
|
(133.4)
|
Decrease/(increase) in receivables
|
71.4
|
(379.0)
|
(Decrease)/increase in payables
|
(30.8)
|
431.8
|
Net movement in collateral
|
155.4
|
(406.8)
|
Decrease in provisions
|
(4.4)
|
(29.1)
|
(Increase)/decrease in renewable certificate
assets
|
(104.4)
|
113.7
|
Total cash
released from/(absorbed by) working capital
|
107.8
|
(402.8)
|
Net movement in defined benefit pension
obligations
|
(9.6)
|
(10.6)
|
Cash generated
from operations
|
1,111.0
|
320.3
|
(1) Certain
remeasurements of derivative contracts includes the effect of
non-cash unrealised gains and losses recognised in the Consolidated
income statement and their subsequent cash realisation. It also
includes the cash and non-cash impact of deferring and recycling
gains and losses on derivative contracts designated into hedge
relationships under IFRS 9, where the gain or loss is held in the
hedge reserve and then released to the Consolidated income
statement in the period the hedged transaction occurs. At
31 December 2023 the Group had accelerated £nil of cash flows
through the use of rebasing (2022: £43.1 million).
The Group has generated cash from operations of
£1,111.0 million during the year (2022: £320.3 million). This
resulted from a cash inflow from operating activities before
working capital of £1,012.8 million (2022: £733.7 million) and a
net working capital cash inflow of £107.8 million (2022: cash
outflow of £402.8 million). This was offset by a £9.6 million
(2022: £10.6 million) cash outflow in respect of pension
obligations. The most significant factors making up these cash
movements are explained in further detail below.
The £222.0 million outflow due to the adjustment
for certain remeasurements of derivative contracts in the current
year (2022: £288.7 million inflow) mainly relates to a net cash
outflow due to realised losses on maturing trades. The adjustment
for realised losses was in part offset by unrealised losses
recognised within the Consolidated income statement.
Prices in power and commodity markets have
reduced in 2023 compared to 2022, but remain elevated compared to
historical norms. Cash collateral is sometimes paid or received in
relation to the Group's commodity and treasury trading activities.
When derivative positions are out of the money for the Group,
collateral may be required to be paid to the counterparty. When
derivative positions are in the money, collateral may be received
from counterparties. These positions reverse when mark-to-market
positions reduce, or contracts are settled, and the collateral
is returned.
The Group actively manages its liquidity
requirements. This includes managing collateral associated with the
hedging of power and other commodities, as well as other
contractual arrangements. Under certain arrangements the Group is
able to use non-cash collateral, such as letters of credit and
surety bonds, that may otherwise have required cash
collateral.
The Group has had a net cash inflow of £155.4
million from collateral during the year, as trades have matured and
mark-to-market positions have reduced (2022: £406.8 million
outflow). As at 31 December 2023, the Group held £20.3 million
in cash collateral receipts (2022: £nil) recognised in payables,
and had posted £98.9 million (2022: £234.0 million) of cash
collateral payments recognised in receivables. The Group had also
utilised £14.5 million (2022: £54.5 million) of letters of credit
and £70.0 million (2022: £165.0 million) of surety bonds to cover
commodity trading collateral requirements. Letters of credit and
surety bonds utilised at the reporting date have reduced the
requirement for cash collateral payments, which has increased the
amount by which receivables have decreased.
The Group has a strong focus on cash flow
discipline and managing liquidity. The Group enhances its working
capital position by managing payables, receivables, inventories and
renewable certificate assets to make sure the working capital
committed is closely aligned with operational requirements. The
impact of these actions on the cash flows of the Group is included
within the further detail explained below.
The table below sets out the key arrangements
utilised by the Group to manage elements of its working
capital:
|
As at
31 December
2023
£m
|
As
at
31
December
2022
£m
|
Inflow/
(outflow)
£m
|
Receivables monetisation
|
400.0
|
400.0
|
-
|
ROC monetisation sales
|
298.4
|
331.2
|
32.8
|
Supply chain finance
|
(48.6)
|
(53.9)
|
(5.3)
|
Deferred letters of credit
|
(224.7)
|
(181.2)
|
43.5
|
Credit cards
|
(0.4)
|
(33.3)
|
(32.9)
|
|
424.7
|
462.8
|
38.1
|
None of the balances in the table above are
included within the Group's definition of Net debt or borrowings
(see note 4 for further details on Net debt). The receivables
monetisation facility is non-recourse in nature and therefore there
is no future liability associated with these amounts. Through
standard ROC sales and ROC purchase arrangements the Group is able
to manage the working capital cycle of inflows and outflows of
these assets. The supply chain finance, deferred letters of credit
and credit card facilities are linked directly to specific payables
that provide a short extension of payment terms of less than 12
months. The impact of these facilities on the cash flows of the
Group is explained further below.
The overall cash inflow of £71.4 million (2022:
outflow of £379.0 million) due to lower receivables in the current
year, is primarily a result of a reduction in energy prices
compared to the prior year.
The Customers business has access to a
receivables monetisation facility which enables it to accelerate
cash flows associated with amounts receivable from energy supply
customers on a non-recourse basis. The Group refinanced this
facility during the prior year, to increase the size of the
facility to £400.0 million from £200.0 million for the period to
March 2025, and then reducing to £300.0 million until the facility
matures in January 2027. Utilisation of the facility was £400.0
million at 31 December 2023 (2022: £400.0 million). As the
facility was fully utilised at 31 December 2023 and
31 December 2022 there has been no cash flow impact in the
period (2022: £200.0 million cash inflow, as the facility was
increased in size from £200.0 million to £400.0
million).
Payables have largely remained consistent year
on year, with a cash outflow of £30.8 million (2022: £431.8 million
inflow). Certain of the Group's suppliers are able to access a
supply chain finance facility provided by a bank, for which funds
can be accelerated in advance of normal payment terms. At
31 December 2023, the Group had trade payables of £48.6
million (2022: £53.9 million) related to this reverse factoring.
The facility does not directly impact the Group's working capital,
as payment terms remain unaltered with the Group and would remain
the same should the facility fall away.
The Group also has access to other payment
facilities which enable it to leverage scale and efficiencies in
transaction processing, whilst providing a working capital benefit
due to a short extension of payment terms of less than 12 months.
The amount outstanding under these facilities at 31 December
2023 was £225.1 million (2022: £214.5 million), of which £224.7
million (2022: £181.2 million) related to deferred letters of
credit and £0.4 million (2022: £33.3 million) related to credit
cards. Of the total deferred letters of credit, £155.1 million
(2022: £133.8 million) were utilised for capital expenditure and
£69.6 million (2022: £47.4 million) were utilised for trade
payables. Utilisation of these payment facilities impacted the
purchases of property, plant and equipment line in the Consolidated
cash flow statement and the movement in payables line
above.
The movement in renewable certificate assets
during the year includes a combination of generation, utilisation,
purchases and sales. The £104.4 million cash outflow (2022: £113.7
million inflow) is predominantly due to an increase in the value of
renewable certificates generated and still held by the Group
compared to the prior year, and a reduced level of ROC monetisation
sales. Cash from renewable certificates, and in particular ROCs, is
typically realised several months after they are earned; however,
through standard ROC sales and ROC purchase arrangements the Group
is able to manage the working capital cycle of inflows and outflows
of these assets. At 31 December 2023 the Group had cash
inflows of £298.4 million from using these standard renewable
certificate sales (2022: £331.2 million).
Changes in
liabilities arising from financing cash flows
A reconciliation of the movements in liabilities
arising from financing activities for both cash and non-cash
movements is provided below:
|
Borrowings
£m
|
Lease
liabilities
£m
|
Hedging
instruments
£m
|
Total
£m
|
At 1 January
2023
|
1,440.9
|
153.1
|
(2.2)
|
1,591.8
|
Cash flows from financing activities
|
14.5
|
(25.8)
|
-
|
(11.3)
|
Effect of changes in foreign exchange
rates
|
(35.5)
|
(6.6)
|
29.8
|
(12.3)
|
Other movements
|
5.3
|
15.1
|
-
|
20.4
|
Other movements from operating
activities
|
-
|
-
|
4.9
|
4.9
|
At
31 December 2023
|
1,425.2
|
135.8
|
32.5
|
1,593.5
|
|
Borrowings
£m
|
Lease
liabilities
£m
|
Hedging
instruments
£m
|
Total
£m
|
At 1 January
2022
|
1,361.0
|
125.9
|
62.5
|
1,549.4
|
Cash flows from financing activities
|
2.1
|
(18.0)
|
-
|
(15.9)
|
Effect of changes in foreign exchange
rates
|
71.3
|
11.5
|
(56.2)
|
26.6
|
Other movements
|
6.5
|
33.7
|
-
|
40.2
|
Other movements from operating
activities
|
-
|
-
|
(8.5)
|
(8.5)
|
At
31 December 2022
|
1,440.9
|
153.1
|
(2.2)
|
1,591.8
|
Other movements principally relate to the
amortisation of deferred finance costs, debt acquired through the
acquisition of BMM, discounting of lease liabilities and lease
additions in the year.
Hedging instruments includes cross-currency
interest rate swaps that are hedging both principal and interest
payments on borrowings. Interest payments are classified as
operating cash flows in the Consolidated cash flow statement, as
such movements relating to interest payments are recognised within
the Other movements from operating activities line
above.
8.
Equity and reserves
The Group's ordinary share capital reflects the
total number of shares in issue, which are publicly traded on the
London Stock Exchange.
Accounting
policy
Ordinary shares are classified as equity as
evidenced by their residual interest in the assets of the Company
after deducting its liabilities. Incremental costs directly
attributable to the issue of new shares or options are shown in
equity as a deduction, net of tax, from the proceeds.
Issued
equity
|
As at
31 December
|
2023
£m
|
2022
£m
|
Issued and fully paid:
|
|
|
424,923,406 ordinary shares of 11 16⁄29 pence each (2022: 414,872,491)
|
49.1
|
47.9
|
The movement in allotted and fully paid share
capital of the Company during the year was as follows:
|
Year
ended 31 December
|
2023
(number)
|
2022
(number)
|
At 1
January
|
414,872,491
|
413,068,027
|
Issued under employee share schemes
|
10,050,915
|
1,804,464
|
At
31 December
|
424,923,406
|
414,872,491
|
The Company has only one class of shares, which
are ordinary shares of 11 16⁄29 pence each,
carrying no right to fixed income. No shareholders have waived
their rights to dividends. Throughout the year, shares were issued
in satisfaction of options vesting in accordance with the
rules of the Group's employee share schemes.
Share buyback
programme
On 26 April 2023, the Group announced the
commencement of a £150 million share buyback programme. The buyback
programme was concluded on 15 September 2023. The shares purchased
by the Group have not been cancelled and so continue to be included
in the issued shares in the above table.
Alternative performance measures (APMs) glossary
table
The Alternative performance measures (APMs)
described below are used throughout the Annual report and accounts
and are measures that are not defined within IFRS but provide
additional information about financial performance and position
that is used by the Board to evaluate the Group's trading
performance. These APMs have been defined internally and may
therefore not be comparable to APMs presented by other companies.
Additionally, certain information presented is derived from amounts
calculated in accordance with IFRS but is not itself a
measure defined under IFRS. Such measures should not be viewed in
isolation or as an alternative to the equivalent
IFRS measure.
APM
|
Closest IFRS
equivalent measure
|
Purpose
|
|
Definition
|
Adjusted results
|
Total results
|
The Group's Adjusted results are consistent
with the way the Board and Executive management assess the
performance of the Group. Adjusted results are intended to reflect
the underlying trading performance of the Group's businesses and
are presented to assist users of the Consolidated financial
statements in evaluating the Group's trading performance and
performance against strategic objectives on a consistent
basis.
Adjusted results excludes exceptional items and
certain remeasurements.
Exceptional items are those transactions that,
by their nature, do not reflect the trading performance of the
Group in the period.
Certain remeasurements comprise fair value
gains and losses that do not qualify for hedge accounting (or hedge
accounting is not effective). The Group regards all of its forward
contracting activity to represent economic hedges and therefore by
excluding the volatility caused by recognising fair value gains and
losses prior to maturity of the contracts, the Group can reflect
these contracts at the contracted prices on maturity, reflecting
the intended purpose of entering these contracts and the Group's
underlying performance.
Adjusted results are the metrics used in the
calculation of Adjusted basic EPS and Adjusted diluted
EPS.
|
|
Total results measured in accordance with IFRS
excluding the impact of exceptional items and certain
remeasurements. Exceptional items and certain remeasurements are
defined in note 4.
|
Adjusted EBITDA including EGL
and
Adjusted EBITDA excluding EGL
|
Operating profit(1)
|
Adjusted EBITDA including EGL is the primary
measure used by the Board and Executive management to assess the
financial performance of the Group as it provides a more comparable
assessment of the Group's year-on-year trading performance. It is
also a key metric used by the investor community to assess the
performance of the Group's operations.
The Group presents Adjusted EBITDA excluding
EGL to enable readers to compare, on a consistent basis, the
Adjusted EBITDA in prior periods in which EGL was not
applicable.
|
|
Earnings before interest, tax, depreciation,
amortisation, other gains and losses and impairment of non-current
assets, excluding the impact of exceptional items and certain
remeasurements (defined in note 4).
Adjusted EBITDA including EGL includes the cost
of EGL and excludes any earnings from associates or attributable to
non‑controlling
interests.
Adjusted EBITDA excluding EGL is consistent
with the definition of Adjusted EBITDA including EGL, apart from it
does not include the cost of EGL.
|
Adjusted basic EPS
|
Basic EPS
|
Adjusted basic EPS represents the amount of
Adjusted earnings (Adjusted post-tax earnings) attributable to each
ordinary share.
|
|
Adjusted basic EPS is calculated by dividing
the Group's Adjusted earnings attributable to owners of the parent
company (Adjusted profit after tax) by the weighted average number
of shares outstanding during the period.
|
Adjusted diluted EPS
|
Diluted EPS
|
Adjusted diluted EPS demonstrates the impact
upon the Adjusted basic EPS if all outstanding share options, that
are expected to vest on their future maturity dates and where the
shares are considered to be dilutive, were exercised and treated as
ordinary shares as at the reporting date.
|
|
Adjusted diluted EPS is calculated by dividing
the Group's Adjusted earnings attributable to owners of the parent
company (Adjusted profit after tax) by the weighted average number
of shares outstanding during the period and dilutive potential
ordinary shares outstanding under share plans.
|
Borrowings
|
n/a(2)
|
Borrowings provide information relating to the
Group's use of debt. It is a key measure of leverage and provides
information on the sources of liquidity for the Group.
|
|
Borrowings include drawn debt facilities
including bonds, term loans, revolving credit facilities (RCFs) (to
the extent drawn in cash) and other drawn debt facilities available
for general use. Borrowings do not include other financial
liabilities such as lease liabilities calculated in accordance with
IFRS 16, pension obligations and trade and other payables.
Borrowings do not include working capital facilities that are
linked to specific payables and give an extension in payment terms
of less than 12 months such as supply chain finance, deferred
letters of credit, credit cards and factoring
facilities.
|
Net debt
|
Borrowings less cash and cash
equivalents
|
Net debt is a key measure of the Group's
liquidity and its ability to manage current obligations.
Net debt is used as a basis by debt rating
agencies to assess credit risk, and in the calculation of the
Group's financial covenant requirements.
The impact of hedging instruments included
within Net debt shows the economic substance of the Net debt
position, in terms of actual expected future cash flows to settle
that debt.
|
|
Borrowings (as defined above) including the
impact of hedging instruments less cash and cash
equivalents.
Net debt excludes the proportion of cash and
borrowings in non-wholly owned entities that would be attributable
to the non-controlling interests.
Net debt includes the impact of foreign
currency hedging instruments, meaning that any borrowings that have
associated hedging instruments in place are adjusted to reflect
those borrowings at the hedged rate.
Net debt includes the impact of any cash
collateral receipts from counterparties or cash collateral posted
to counterparties.
|
Net debt to Adjusted EBITDA including
EGL ratio
and
Net debt to Adjusted EBITDA excluding
EGL ratio
|
Borrowings less cash and cash equivalents
divided by operating profit(1)
|
The Net debt to Adjusted EBITDA including
EGL ratio is a debt ratio that gives an indication of how many
years it would take the Group to pay back its debt if Net debt and
Adjusted EBITDA including EGL are held constant.
The Group has a long-term target for Net debt
to Adjusted EBITDA including EGL of around
2.0 times.
The Group presents a Net debt to Adjusted
EBITDA excluding EGL ratio to enable readers to compare, on a
consistent basis, the Net debt ratio in prior periods in which EGL
was not applicable.
|
|
Net debt divided by Adjusted EBITDA
including/excluding EGL. Expressed as a multiple.
|
Cash and committed facilities
|
Cash and cash equivalents
|
This is a key measure of the Group's
available liquidity and the Group's ability to manage its
current obligations.
It shows the value of cash available
to the Group in a short period of time.
|
|
Total cash and cash equivalents plus the value
of the Group's committed but undrawn facilities (including the
Group's RCFs, loan facilities and the Customers non-recourse
trade receivables monetisation facility).
|
Capital expenditure
|
Property, plant and equipment (PPE) additions
and intangible asset additions
|
Used to show the Group's total spend
on PPE and intangible assets in a year.
|
|
PPE additions plus intangible asset
additions.
|
(1) Operating profit is
presented on the Group's Consolidated income statement; however, it
is not defined per IFRS. It is a generally accepted measure of
profit.
(2) Borrowings are
presented in the Group's Consolidated balance sheet; they are a
commonly used balance sheet line item heading however borrowings
are not defined by IFRS, therefore the Group's borrowings may not
be comparable to borrowings presented by other
companies.
Glossary
Ancillary services
Services provided to National Grid used for
balancing supply and demand or maintaining secure electricity
supplies within acceptable limits, for example Black start
contracts. They are described in Connection Condition 8 of the Grid
Code.
Availability
Average percentage of time the units were
available for generation.
BECCS
Bioenergy with carbon capture and storage, with
carbon resulting from power generation captured and
stored.
Black start
Procedure used to restore power in the event of
a total or partial shutdown of the national electricity
transmission system.
Biogenic carbon cycle
Biogenic refers to something that is produced
by, or originates from, a living organism. The biogenic carbon
cycle is the natural process of plants and animals releasing
CO2 into the atmosphere through respiration and
decomposition, and plants absorbing CO2 via
photosynthesis.
Biomass
Organic material of non-fossil origin, including
organic waste, that can be converted into bioenergy through
combustion. The Group uses sawmill and other wood industry residues
and forest residuals (which includes low grade roundwood,
thinnings, branches and tops) in the form of compressed wood
pellets, to generate electricity at Drax Power station or sell the
pellets to third-parties.
Capacity Market
Part of the UK Government's Electricity Market
Reform, the Capacity Market is intended to ensure security of
electricity supply by providing a payment for reliable sources of
capacity.
Carbon capture and storage (CCS)
The process of trapping or collecting carbon
emissions from a large-scale source and then permanently storing
them.
CCC
The UK's Climate Change Committee.
Contracts for Difference (CfD)
A mechanism to support investment in low-carbon
electricity generation. The CfD works by stabilising revenues for
generators at a fixed price level known as the 'strike price'.
Generators will receive revenue from selling their electricity into
the market as usual, however, when the market reference price is
below the strike price, they also receive a top-up payment for the
additional amount. Conversely, if the reference price is above the
strike price, the generator must pay back the
difference.
Combined Cycle Gas Turbines (CCGT)
A form of highly efficient energy generation
technology that combines a gas-fired turbine with a steam
turbine.
Department for Energy Security and Net Zero
(DESNZ)
The UK Government Department provides dedicated
leadership focused on delivering security of energy supply,
ensuring properly functioning markets, greater energy efficiency
and seizing the opportunities of net zero to lead the world in new
green industries.
Dispatchable power
An electricity generator produces dispatchable
power when the power can be ramped up and down, or switched on
or off, at short notice to provide (or dispatch) a flexible
response to changes in electricity demand. Biomass, pumped
storage, coal, oil, and gas electricity generation can meet
these criteria and hence can be dispatchable power sources.
Nuclear can be dispatched against an agreed schedule but is not
flexible. Wind and solar electricity cannot be scheduled and hence
are not Dispatchable. An electricity system requires sufficient
dispatchable power to operate and remain safe.
EBRS
The UK Government's Energy Bill Relief
Scheme.
ESG
Environmental, Social and Governance.
First Nations
Any of the groups of indigenous peoples in
Canada.
Forced outage/Unplanned outage
Any reduction in plant availability, excluding
planned outages.
FSC®
Forest Stewardship Council: an international
non-governmental organisation which promotes responsible management
of the world's forests.
Frequency response
The automatic change in generation output, or in
demand, to maintain a system frequency of 50Hz.
GHG
Greenhouse Gas.
Grid charges
Includes transmission network use of system
charges (TNUoS), balancing services use of system charges (BSUoS)
and distribution use of system charges (DUoS).
IAB
Independent Advisory Board, comprising
scientists, academics, and forestry experts who provide independent
challenge, insight and advice into the Group's
activities.
IFRS
International Financial Reporting
Standards.
Lost Time Incident Rate (LTIR)
The frequency rate is calculated on the
following basis: (fatalities and lost time injuries)/hours
worked x 100,000. Lost time injuries are defined as
occurrences where the injured party is absent from work for more
than 24 hours.
NGO
Non-governmental organisation.
Near Miss and Hazard Identification Rate
(NMHIR)
The total number of near miss and hazard
identification reports logged per 100,000 hours worked. Total
includes both employees and contractors.
Open Cycle Gas Turbine (OCGT)
A free-standing gas turbine, using compressed
air, to generate electricity.
Planned outage
A period during which scheduled maintenance is
executed according to the plan set at the outset of the
year.
PEFC
Programme for the Endorsement of Forest
Certifications: an independent, non-profit, non-governmental
organisation that promotes sustainable forest management through
independent third-party certification.
Pulp wood
A low value and bulky product, generally
produced from the top of trees or from production
thinnings, with the principal use of making wood pulp for paper
production.
Rebasing
Rebasing is when the Group releases cash from an
open derivative contract that is in a mark-to-market asset position
by modifying the rate per the contract. A cash payment equivalent
to the reduction in the mark-to-market asset is received by the
Group from the counterparty, less any applicable fees.
Reserve
Generation or demand available to be dispatched
by the System Operator to correct a generation/demand
imbalance, normally at two or more minutes' notice.
Response
Automatic change in generator output aimed at
maintaining a system frequency of 50Hz. Frequency response is
required in every second of the day.
ROC
A Renewables Obligation Certificate (ROC) is a
certificate issued to an accredited generator for electricity
generated from eligible renewable sources.
Sawlog
A felled tree trunk suitable for being processed
at a sawmill for cutting up into lumber.
SBP
Sustainable Biomass Program: a certification
system designed for woody biomass used in industrial energy
production.
Summer
The calendar months April to
September.
Sustainable biomass
Biomass which complies with the definition of
"sustainable source", Schedule 3, Land Criteria, UK Renewables
Obligation Order 2015.
System operator
National Grid Electricity Transmission.
Responsible for the co-ordination of electricity flows onto and
over the transmission system, balancing generation supply and user
demand.
TCFD
Task Force on Climate-related Financial
Disclosures.
Thinning
Thinning operations correct overcrowding, and
improve the health and vigour of those trees which remain. Thinning
targets small, malformed, and diseased trees for removal, allowing
the healthier trees the space, light, and soil to reach maturity
sooner. Thinning also mitigates the risk of pest infestation and
wildfire, while speeding the development of a more mature forest
with increased plant diversity.
Total recordable incident rate (TRIR)
The frequency rate is calculated on the
following basis: (fatalities, lost time injuries and worse
than first aid injuries)/hours worked x 100,000.
Total results
Financial performance measures prefixed with
'Total' are calculated in accordance with IFRS.
UK
ETS
The UK Emissions Trading Scheme is a mechanism
introduced across the UK to reduce carbon emissions; the scheme is
capable of being extended to cover all greenhouse gas
emissions.
Winter
The calendar months October to March.