TIDMDRX
RNS Number : 6883T
Drax Group PLC
26 July 2022
26 July 2022
DRAX GROUP PLC (Symbol: DRX)
HALF YEAR RESULTS FOR THE SIX MONTHSED 30 JUNE 2022
Strong performance, supporting security of supply, investment in
renewables
Six months ended 30 June H1 2022 H1 2021
Key financial performance
measures
Adjusted EBITDA (GBP million)(1)(2) 225 186
Continuing operations 225 165
Discontinued operations -
gas generation - 21
Net Debt (GBP million)(3 () 1,101 1,029
Adjusted Basic EPS (pence)(1) 20.0 14.6
Interim dividend (pence per
share) 8.4 7.5
Total financial performance
measures from continuing operations
Operating profit (GBP million) 207 84
Profit before tax (GBP million) 200 52
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Will Gardiner, CEO of Drax Group, said "As the UK's largest
generator of renewable power by output, Drax plays a critical role
in supporting the country's security of supply. We are accelerating
our investment in renewable generation, having recently submitted
planning applications for the development of BECCS at Drax Power
Station and for the expansion of Cruachan Pumped Storage Power
Station.
"As a leading producer of sustainable wood pellets we continue
to invest in expanding our pellet production in order to supply the
rising global demand for renewable power generated from biomass. We
have commissioned new biomass pellet production plants in the US
South and expect to take a final investment decision on up to
500,000 tonnes of additional capacity before the end of the
year.
"As carbon removals become an increasingly urgent part of the
global route to Net Zero, we are also making very encouraging
progress towards delivering BECCS in North America and progressing
with site selection, government engagement and technology
development.
"In the UK and US we have plans to invest GBP3 billion in
renewables that would create thousands of green jobs in communities
that need them, underlining our position as a growing,
international business at the heart of the green energy
transition."
Financial highlights
-- Adjusted EBITDA GBP225 million up 21% (H1 2021: GBP186 million)
-- Strong liquidity and balance sheet - GBP539 million of cash
and committed facilities at 30 June 2022
- Expect to be significantly below 2 times Net Debt to Adjusted
EBITDA by the end of 2022
-- Sustainable and growing dividend - expected full year
dividend up 11.7% to 21.0 p/share (2021: 18.8 p/share)
- Interim dividend of 8.4 p/share (H1 2021: 7.5 p/share) - 40%
of full year expectation
Progress with strategy in H1 2022
-- To be a global leader in sustainable biomass - targeting 8Mt
of capacity and 4Mt of sales to 3(rd) parties by 2030
- Addition of 0.4Mt of operational pellet production
capacity
- New Tokyo sales office opened July 2022
-- To be a global leader in negative emissions
- BECCS - UK - targeting 8Mt of negative emissions by 2030
- Planning application submitted and government consultation on
GGR business models published with power BECCS business model
consultation expected "during the summer"
- BECCS - North America - targeting 4Mt of negative emissions by
2030
- Ongoing engagement with policy makers, screening of regions
and locations for BECCS
-- To be a leader in UK dispatchable, renewable power
- >99% reduction in scope 1 and 2 emissions from generation
since 2012
- UK's largest generator of renewable power by output - 11% of
total
- Optimisation of biomass generation and logistics to support
security of supply at times of higher demand
- Planning application submitted for 600MW expansion of Cruachan
and connection agreement secured
Outlook for 2022
-- Expectations for full year Adjusted EBITDA unchanged from 6
July 2022 update which reflected optimisation of biomass generation
and logistics to support UK security of supply this winter when
demand is high, a strong pumped storage performance and agreement
of a winter contingency contract for coal
Future positive - people, nature, climate
-- People
- Diversity and inclusion programme - inclusive management,
promoting social mobility via graduates, apprenticeships and work
experience programmes
- Continued commitment to STEM outreach programme
-- Nature and climate
- Science-based sustainability policy fully compliant with
current UK and EU law on sustainable sourcing and aligned with UN
guidelines for carbon accounting
- Biomass produced using sawmill and forest residuals, and
low-grade roundwood , which often have few alternative markets and
would otherwise be landfilled, burned or left to rot, releasing
CO(2) and other GHGs
- Increase in sawmill residues used by Drax to produce pellets -
67% of total fibre (FY 2021: 62%)
- 100% of woody biomass produced by Drax verified against SBP,
SFI, FSC (R)(4) or PEFC Chain of Custody certification with
third-party supplier compliance primarily via SBP certification
Operational review
Pellet Production - increased production, flexible operations to
support UK generation, addition of 0.4Mt of capacity
-- Adjusted EBITDA up 13% to GBP45 million (H1 2021: GBP40 million)
- Pellet production up 54% to 2.0Mt (H1 2021: 1.3Mt) ( including
Pinnacle since 13 April 2021)
-- Addition of c.0.4Mt of new production capacity
- Commissioning of Demopolis and Leola, expect to reach full
production capacity in H2 2022
-- Total $/t cost of $146/t(5) - 2% increase on 2021 ($143/t(5) )
- Increase in utility costs in Q2-22 (>20% increase)
- Fuel surcharge - barge and rail to port (> 10%
increase)
- Commissioning costs at Demopolis and Leola plants
- Net reduction in other costs, inclusive of optimisation of
supply chain to meet reprofiling of Generation
- No material change in fibre costs
-- Areas of focus for further savings - wider range of
sustainable biomass fibre, continued focus on operational
efficiency and improvement, capacity expansion, innovation and
technology
-- Continue to target final investment decision on up to 0.5Mt of new capacity in H2 2022
Generation - increased recognition of value of long-term
security of supply from biomass and pumped storage
-- Adjusted EBITDA from continuing operations GBP205 million up 24% (H1 2021: GBP165 million)
- Optimisation of biomass generation and logistics to support
security of supply at times of higher demand
- Summer - lower power demand, lower power generation and sale
of reprofiled biomass
- Winter - maximise biomass deliveries to support increased
generation at times of higher demand
- Four small, planned biomass outages completed in H1,
supporting higher planned generation in H2-22
- Strong portfolio system support performance (balancing
mechanism, ancillary services and optimisation)
- Higher cost of sales - logistics optimisation, biomass and
system costs
-- Six-month extension of coal at request of UK government -
winter contingency contract for security of supply
- Closure of coal units in March 2023 following expiration of
agreement with ESO at end of March 2023
- Fixed fee and compensation for associated costs, including
coal
- Remain committed to coal closure and development of BECCS,
with no change to expected timetable
-- As at 21 July 2022, Drax had 25.4TWh of power hedged between
2022 and 2024 on its ROC and hydro generation assets at an average
price of GBP95.9/MWh, with a further 2.3TWh equivalent of gas sales
(transacted for the purpose of accessing additional liquidity for
forward sales from ROC units and highly correlated to forward power
prices) plus additional sales under the CfD mechanism
Contracted power sales 21 July
2022 2022 2023 2024
--------------------------------------- -------- ------- -------
ROC (TWh) (6) 11.7 8.8 4.5
- Average achieved GBP per MWh 87.2 98.3 109.5
Hydro (TWh) 0.3 0.1 -
- Average achieved GBP per MWh 133.1 242.0 -
Gas hedges (TWh equivalent) (0.1) 0.5 1.9
- Pence per therm 361.0 145.8 135.0
Lower expected level of ROC generation in 2023 due to major
planned outages on two units
Customers - renewable power under long-term contracts to
high-quality I&C customers and decarbonisation products
-- Adjusted EBITDA of GBP24 million (H1 2021: GBP5 million loss)
- continued improvement following impact of Covid-19 - principally
in the SME business
- Includes benefit of excess contracted power sold back into
merchant market
-- Continued development of Industrial & Commercial (I&C) portfolio
- 6.9TWh of power sales - 21% increase compared to H1 2021
(5.7TWh)
- Focusing on key sectors to increase sales to high-quality
counterparties supporting generation route to market
- Energy services to expand the Group's system support
capability and customer sustainability objectives
-- SME - increasingly stringent credit control in SME business
to reflect higher power price environment
Other financial information
-- Total operating profit from continuing operations of GBP207
million (H1 2021: GBP84 million), including GBP130 million
mark-to-market gain on derivative contracts and GBP27 million of
exceptional costs
-- Total profit after tax from continuing operations of GBP148
million includes an GBP8 million non-cash charge from revaluing
deferred tax balances following confirmation of UK corporation tax
rate increases from 2023 (H1 2021: GBP6 million loss including a
GBP48 million non-cash charge from revaluing deferred tax
balances)
-- Capital investment of GBP60 million (H1 2021: GBP71 million) - primarily maintenance
- Full year expectation of GBP290-GBP310 million, includes
GBP120 million for Open Cycle Gas Turbine projects, GBP20 million
BECCS FEED and site preparation, and GBP10 million associated with
new pellet capacity, subject to final investment decision (FID)
-- Depreciation and amortisation of GBP121 million (H1: GBP89
million) reflects inclusion of Pinnacle for a full six months,
plant upgrades and accelerated depreciation of certain pellet plant
equipment in line with planned capital upgrades
-- Group cost of debt below 3.6%
-- Cash Generated from Operations GBP185 million (H1 2021: GBP138 million)
-- Net Debt of GBP1,101 million (31 December 2021: GBP1,044
million), including cash and cash equivalents of GBP288 million (31
December H1 2021: GBP317 million)
- Continue to expect Net Debt to Adjusted EBITDA significantly
below 2 times by end of 2022, reflecting optimisation of generation
and logistics to deliver higher levels of power generation and cash
flows in H2 2022
Notes:
(1) Financial performance measures prefixed with "Adjusted" are
stated after adjusting for one-off exceptional items that, by their
nature, do not reflect the trading performance of the Group
(revaluation of deferred tax balances reflecting future increases
in UK CT rates, acquisition costs, gain on sale of Combined Cycle
Gas Turbine generation assets, restructuring costs, debt
restructuring costs and asset obsolescence charges and
impairments), and certain remeasurements on derivative contracts.
Adjusted EBITDA and EPS measures exclude amounts attributable to
non-controlling interests.
(2) Earnings before interest, tax, depreciation, amortisation,
gains/losses on disposal of assets 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) Borrowings less cash and cash equivalents, excluding amounts
attributable to non-controlling interests.
(4) FSC License code: FSC-C119787.
(5) Total $/t cost of production in Pellet Production - raw
fibre, processing into a wood pellet, delivery to Drax port
facilities in US and Canada, loading to vessel for shipment and
overheads - Free on Board (FOB). Cost of ocean freight, UK port and
rail cost reflected in Generation business accounts in addition to
price paid to Pellet Production for the biomass pellet.
(6) Typical estimated annual biomass generation from ROC and CfD
units c.14TWh based on estimated biomass availability,
incrementally lower in 2023 due to major planned outages on two ROC
units, expected to result in lower ROC cap versus 2022.
Forward Looking Statements
This announcement may contain certain statements, expectations,
statistics, projections and other information that are or may be
forward-looking. The accuracy and completeness of all such
statements, including, without limitation, statements regarding the
future financial position, strategy, projected costs, plans,
beliefs and objectives for the management of future operations of
Drax Group plc ("Drax") and its subsidiaries (the "Group"), are not
warranted or guaranteed. By their nature, forward-looking
statements involve risk and uncertainty because they relate to
events and depend on circumstances that may occur in the future.
Although Drax believes that the statements, expectations,
statistics and projections and other information reflected in such
statements are reasonable, they reflect Drax's current view and no
assurance can be given that they will prove to be correct. Such
events and statements involve risks and uncertainties. Actual
results and outcomes may differ materially from those expressed or
implied by those forward-looking statements. There are a number of
factors, many of which are beyond the control of the Group, which
could cause actual results and developments to differ materially
from those expressed or implied by such forward-looking statements.
These include, but are not limited to, factors such as: future
revenues being lower than expected; increasing competitive
pressures in the industry; and/or general economic conditions or
conditions affecting the relevant industry, both domestically and
internationally, being less favourable than expected. 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.
Results presentation webcast arrangements
M a nagement will host a webcast presentation for analysts and
investors at 9:00am (UK Time), Tuesday 26 July 2022.
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 slides will be made available from
7:00am (UK time) on Tuesday 26 July 2022 for download at:
www.drax.com>>investors>>results-reports-agm>>
#investor-relations-presentations or use the link
https://www.drax.com/investors/results-reports-agm/#investor-relations-presentations
Event Title: Drax Group plc: Half Year Results
Event Date: Tuesday 26 July 2022
------------------------------------------------------------
9:00am (UK time)
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Webcast Live Event Link: https://secure.emincote.com/client/drax/drax021
------------------------------------------------------------
Conference call and pre-register https://secure.emincote.com/client/drax/drax021/vip_connect
Link:
------------------------------------------------------------
Start Date: Tuesday 26 July 2022
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Delete Date: Tuesday 25 July 2023
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Archive Link: https://secure.emincote.com/client/drax/drax021
------------------------------------------------------------
For further information, please contact:
rosie.corbett@fticonsutling.com
Website: www.drax.com
CEO Business Review
Introduction
The Group's purpose is to enable a zero carbon, lower cost
energy future and this drives our commitment to address climate
change. Since 2012, the actions the Group has taken have reduced
our generation scope 1 and 2 carbon emissions by over 99%. We are
the UK's largest source of renewable power by output, a leading
source of reliable and flexible generation and our ambition is to
become a carbon negative company by 2030.
The world must act now to address the climate crisis and limit
global warming to 1.5(o) C above pre-industrial levels. We need
more renewable energy, more flexible energy systems to make the
best use of intermittent wind and solar energy, and crucially,
greenhouse gas removal technologies, like Bioenergy with Carbon
Capture and Storage (BECCS), to remove carbon from the
atmosphere.
Globally there is increased recognition and policy support for
sustainable biomass and BECCS. We believe that Drax is a world
leader in sustainable biomass and that BECCS can become a world
leading, UK-led, exportable solution for large-scale negative
emissions. These benefits will only be possible with the right
biomass - sustainable biomass. At Drax we are committed to using
the right biomass to ensure positive outcomes for the climate,
nature and people and we have put in place policies, controls and
reviews to support this.
The UK Government has signposted an ambition for at least 5Mt
p.a. of negative emissions from BECCS and Direct Air Capture by
2030, 23Mt p.a. by 2035 and up to 81Mt p.a. by 2050. To support
this ambition, in July 2022, the government published a
consultation on engineered Greenhouse Gas Removals (GGRs).
Separately, the government has publicly stated its intent to
publish a power BECCS business model consultation during summer
2022 in order to develop the financial model required to support
BECCS, recognising its advanced technological readiness and the
co-benefits of both power and negative emissions.
Aligned with our strategy, we have outlined GBP3 billion of
planned investment in growth by 2030. This includes the expansion
of our North American supply chain, BECCS in the UK and
dispatchable non-thermal generation via the expansion of our
Cruachan Pumped Storage Power Station in Scotland. We expect this
plan to be fully funded from future cashflows and by 2030 we
anticipate being significantly below 2 times Net Debt to Adjusted
EBITDA, providing additional capacity to support the options we are
developing to invest in BECCS in North America.
The Intergovernmental Panel on Climate Change (IPCC), the UK's
Climate Change Committee (CCC) and the Coalition for Negative
Emissions have all outlined a clear role for BECCS, identifying a
requirement of between 2 billion and 7 billion tonnes of negative
emissions globally from BECCS per year. Recognising the importance
of this opportunity we are also continuing to develop options for
BECCS projects outside of the UK.
At the same time as addressing the global challenge of climate
change, we must also address the challenge of energy security of
supply this winter. At the request of the UK Government, we have
entered into an agreement with National Grid pursuant to which our
two legacy coal-fired units at Drax Power Station will remain
available to provide a "winter contingency" service to the UK power
system from October 2022 until the end of March 2023, at which
point the units will close. The units will not generate
commercially for the duration of the agreement and will only
operate if and when instructed to do so by National Grid.
Summary of H1 2022
Safety remains a primary focus and in the first half of 2022 the
Total Recordable Incident Rate was 0.41 (H1 2021: 0.14). The
increase in part reflects a widening of the scope and improvement
in the recording of incidents in our North American operations,
which now includes contractors in the Pinnacle operations we
acquired in 2021. Over the last 12 months we have begun
implementing a rigorous HSE improvement plan in our North American
business as we align safety and environmental practices across the
Group. We expect investments in training, human resource and
capital projects to deliver improved performance.
Adjusted EBITDA of GBP225 million represents a 21% increase
compared to H1 2021 (GBP186 million). This strong performance
reflects increased pellet sales, a strong generation performance
across the portfolio and improved profitability in our Customers
business. Whilst we have seen some limited inflationary pressures
in our cost base, most notably in respect of utilities and bunker
fuel, the integrated nature of our biomass supply chain and
operations, combined with long-term contracts in place for fibre,
pellet procurement and freight continue to provide a good level of
protection from any cost increases. Further, with indexation of UK
renewable schemes and third-party sales contracts, inflationary
pressure in our cost base is largely offset by increased
revenues.
Our balance sheet is strong with total cash and committed
facilities of GBP539 million as at 30 June 2022 and Net Debt of
GBP1,101 million. Consistent with our fully funded plans for
investment in growth to 2030, we continue to target long-term Net
Debt to Adjusted EBITDA of around 2 times, but now expect to be
significantly below this level by the end of 2022.
We expect to propose a dividend for the 2022 financial year of
GBP84 million, an 11.7% increase on 2021, consistent with our
policy to pay a dividend which is sustainable and expected to grow.
As has been our practice since we implemented the policy in 2017,
40% of the expected full year dividend will be paid for the first
six months of 2022, GBP34 million or 8.4 pence per share.
H1 operational performance
Pellet Production
In North America, our Pellet Production business reported
Adjusted EBITDA of GBP45 million, up 13% (H1 2021: GBP40 million).
This primarily reflects higher levels of production and sales from
existing assets, and the addition of new capacity following the
acquisition of Pinnacle in April 2021.
We produced 2.0Mt of pellets, an increase of 54% (H1 2021:
1.3Mt), which reflects a full six months-worth of production from
Pinnacle's 10 pellet plants following the acquisition in April
2021, increased capacity at Morehouse and LaSalle, Louisiana, and
incremental commissioning volumes at both Demopolis, Alabama and
Leola, Arkansas.
The headline Free On Board (FOB) production cost (the cost of
producing biomass pellets and transferring them to a port in North
America for onwards transit) across the portfolio was $146/t, an
increase of 2% on 2021 (2021: $143/t). In addition to the inflation
impact on utilities and bunker fuels described above, this reflects
a number of other factors.
During the first half of 2022, the Group completed the
commissioning of its 360Kt plant at Demopolis, Alabama and its 40Kt
satellite plant in Leola, Arkansas, with lower production volumes
during commissioning adding temporarily to the average cost per
tonne. Both plants are expected to reach full production capacity
in H2 2022.
The Pellet Production business provided flexibility in biomass
supply, supporting efforts to optimise biomass generation from
summer to winter periods, and support UK security of supply at
times of higher demand in the coming winter. As a result, some
additional cost was incurred in Pellet Production, but additional
value was created for the Group as a whole.
The reprofiling of biomass logistics also enabled accelerated
maintenance work at a number of pellet plants in the first half of
2022 and this is expected to support higher output in H2 2022.
Strong demand for forest products in construction and
manufacturing markets continues to support good fibre residue
availability. Taking account of changes in fibre mix by plant,
there was no material change in overall fibre cost. However, as
outlined in our April 2022 Trading Update, there has been an
incremental increase in transportation costs in North America, as
well as higher utilities costs associated with power and gas in
Q2.
Due to the Group's long-term hedging of freight costs, there has
been no material impact associated with higher market prices for
ocean freight, other than higher bunker fuel costs. The Group uses
long-term contracts to hedge its freight exposure on biomass for
its Generation business, and following the acquisition of Pinnacle,
has taken steps to optimise freight requirements between production
centres in North America and end markets in Asia and Europe.
Between 2018 and 2021, average FOB costs for the portfolio have
reduced from $166/t to $143/t. Whilst we expect to see continued
limited inflationary pressures as mentioned above, we also see
opportunities for continued cost reduction in line with our
strategy.
Generation
Our portfolio generated 5% of the UK's electricity between April
2021 and April 2022 (the most recent period for which data is
available) and 11% of the UK's renewable electricity over the same
period, making Drax the largest renewable generator by output.
Adjusted EBITDA of GBP205 million from continuing operations was
an increase of 24% on H1 2021 (GBP165 million from continuing
operations). This reflects strong biomass generation and pumped
storage hydro performance, providing high levels of dispatchable
renewable and low-carbon electricity and system support services,
more than offsetting incrementally higher biomass costs and grid
charges.
Against the backdrop of increasing concern around European
energy security, in the first half of 2022 we have optimised our
biomass generation and logistics (based on the amount of available
biomass across the year), buying back summer positions and
reprofiling biomass deliveries to move generation from summer to
winter periods, providing additional security of supply to the UK
at times of expected higher demand. We expect to benefit from
incrementally higher power prices in the winter period versus the
summer but have incurred additional cost to enable these
measures.
The current operating environment increases the importance of
appropriate investment to ensure good operational performance and
availability. By optimising generation across all four biomass
units, we believe we can reduce wear and tear and the risk of
forced outage across the portfolio. Additionally, by reprofiling
generation from summer to winter periods, we have also been able to
deliver planned maintenance outages on all four units, which should
support operational availability in the second half of 2022.
Our hydro operations - Cruachan Pumped Storage Power Station
(Cruachan), and the Lanark and Galloway hydro schemes - have
performed strongly. These assets provide renewable electricity,
system support services and Capacity Market income. Taken together
with the Daldowie energy from waste plant, Adjusted EBITDA was
GBP53 million (H1 2021: GBP34 million). This increase reflects the
provision of additional system support activity and good asset
availability.
The Group's generation assets have continued to play an
important role providing stability to the UK power system and
crucially we are not dependent on gas supply to generate. Our
portfolio of dispatchable biomass generation, and flexible pumped
storage are key to an integrated and reliable energy system with
high levels of renewable electricity and system stability. System
stability is not purely about the marginal cost of a MWh of power
but the provision of the non-generation system services that a
well-functioning, reliable power system requires. Our biomass and
pumped storage hydro assets are well placed to do this.
In March 2022, we secured Capacity Market agreements for our
hydro and pumped storage assets providing revenues of around GBP15
million in the delivery period October 2025 to September 2026.
In January 2022, our two legacy coal units were called into the
Balancing Mechanism by the system operator for limited operations
to support security of supply. These short-term measures helped to
stabilise the power system during periods of system stress and did
not result in any significant increase in the Group's total carbon
emissions.
Separately, in March 2022, we signed a development agreement
with Engineering, Procurement and Construction (EPC) contractor
Mytilineos for the development of three 299MW Open Cycle Gas
Turbine (OCGT) developments. Each plant is expected to require
investment in the region of GBP100 million and we expect to invest
around GBP120 million in 2022 in order that we can fulfil our
obligations under the Capacity Market agreements. This investment
is underpinned by a 15-year Capacity Market agreement for delivery
between 2024 and 2039. We are continuing to evaluate options for
these projects, including their potential sale.
Customers
Our Customers business has performed well with Adjusted EBITDA
of GBP24 million (H1 2021: GBP5 million loss). This is a
significant improvement on 2021, which was impacted by Covid-19 -
principally in the SME business. This includes a benefit from the
resale of forward purchased power which was not required by
customers, and was sold back into the merchant market above the
contracted rate.
Over the past two years we have restructured the Customers
business - streamlining operations with the closure of offices in
Oxford and Cardiff - and rebranded the Haven Power Industrial &
Commercial (I&C) business to Drax Energy Solutions. These
changes will support the development of our core I&C supply
business, which has performed well with growth in the contracted
sales position to high-quality customers.
We see an important role in supporting the decarbonisation of
I&C businesses through the supply of renewable energy, asset
optimisation, electric vehicle services and carbon offset
certificates, which we believe could evolve in the future to the
provision of negative emissions.
Alongside restructuring the Customers business, we have
continued to evaluate operational and strategic options for the SME
part of the business.
Strategy update
Our strategy is designed to realise our purpose of enabling a
zero carbon lower cost energy future and our ambition to be a
carbon negative company by 2030.
The strategy includes three complementary strategic pillars,
closely aligned with global energy policies, which increasingly
recognise the unique role that biomass can play in the fight
against climate change. These pillars are to be a global leader in
sustainable biomass pellets; to be a global leader in negative
emissions; and to be a UK leader in dispatchable, renewable
power.
The development of these three pillars is underpinned by the
Group's continued focus on safety, sustainability and biomass cost
reduction.
A global leader in sustainable biomass pellets
We believe the global market for sustainable biomass will grow
significantly, creating international opportunities for sales to
third-parties, BECCS, generation and other long-term uses of
biomass.
To support this expected growth in demand for biomass products,
Drax is targeting 8Mt of pellet production capacity by 2030, which
will require the development of over 3Mt of new biomass pellet
production capacity to supplement existing capacity and
developments. We are developing a pipeline of organic projects,
principally focused on North America, and expect to take a final
investment decision on up to 500Kt of new capacity in the second
half of the year.
In addition to own-use biomass pellets, Drax currently sells
around 2Mt of biomass each year to third parties in Asia, Europe
and the UK under long-term index-linked contracts, with total
contracted revenues of $4.4 billion. We aim to double annual sales
to 4Mt per year by 2030 and to support this process, in July 2022,
the Group formally opened its new sales office in Japan, and is
continuing to develop a European sales team based in London.
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 20 years of experience in biomass operations. The
Group's innovation in coal-to-biomass engineering, together with
the development of a leading position in negative emissions, can be
deployed alongside its large, reliable and sustainable supply chain
to support customer decarbonisation journeys with long-term
partnerships. We expect to sell all the biomass we produce at an
appropriate market price (both for own use at Drax Power Station
and to third-parties), typically under long-term contracts.
A global leader in negative emissions
We plan to transform Drax Power Station, adding BECCS to two
biomass generating units to permanently remove 8Mt of CO(2) from
the atmosphere each year by 2030. The project is well developed,
the technology is proven and an investment decision could be taken
in 2024, subject to the right investment framework. This could mean
that the first BECCS unit would be operational in 2027 and a second
in 2030.
Drax Power Station is in the Humber region, an area with one of
the highest absolute level of carbon emissions in the UK, due to
the number of industrial sites in the area. This makes the region a
natural location for large-scale carbon capture and storage
infrastructure for energy and industry.
The UK Government recognises the important role which BECCS has
to play in delivering net zero, requiring at least 5Mt of CO(2) per
year from BECCS and other engineered GGR by 2030. To support this
ambition, in July 2022, the government published a consultation on
engineered GGRs. Separately, in order to develop the financial
model required to support BECCS - and reflective of its advanced
technological readiness and the co-benefits of both power and
negative emissions - the government has publicly stated its intent
to publish a power BECCS business model consultation during summer
2022.
We expect deliverability to be an important part of the UK
Government's selection criteria. Our technology partner Mitsubishi
Heavy Industries (MHI) has a proven large scale technical solution
which we are adapting for the first two units at Drax Power
Station. In June 2022 we submitted a planning application for BECCS
and are conducting a Front-End Engineering and Design study which
will provide the detailed design information and costings to
support the investment decision, and following the end of coal
operations we will continue early site preparation works.
Alongside MHI's technology, we are supporting other innovative
options for carbon capture. For example, Drax is an equity
shareholder in C-Capture Limited, which is developing an organic
solvent technology that could be used for BECCS and other
applications, which we believe could deliver significant long-term
cost savings for future projects.
To capitalise on our belief in the global need for BECCS and the
technical expertise gained from our Drax Power Station project, our
ambition is to deliver 4Mt of negative CO(2) emissions each year
from BECCS outside of the UK by 2030. Accordingly, we are currently
developing models and locational preferences for international
BECCS developments, with a primary focus on North America.
Recognising this global opportunity for the role of biomass and
BECCS, we are also evaluating other vectors for the use of biomass,
including other industrial processes.
A UK leader in dispatchable, renewable power
The UK's plans to achieve net zero by 2050 will require the
electrification of 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 the remaining power sources can
provide the dispatchable power and non-generation system support
services required to ensure security and stability of supply and to
limit the cost to the consumer.
Long-term biomass generation and pumped storage hydro can
provide these increasingly important services and we are developing
an option for new pumped storage - Cruachan II - to provide an
additional 600MW of dispatchable long-duration storage to the power
system. A planning application was submitted in May 2022. The
location, flexibility and range of services it can provide makes
Cruachan strategically important to the UK power system. A final
investment decision could be taken in 2024 and the development
operational by 2030. Any investment decision will depend on the
right regulatory framework.
People, Nature and Climate positive
We remain committed to delivering positive people, climate and
nature outcomes, which we believe are highly complementary to our
business model, in which sustainable biomass and greenhouse gas
emissions are a central focus.
Biomass - when sustainably sourced - is a renewable, low-carbon
source of energy, and an important part of both UK and
international renewable energy policy, in many instances using
material which the timber industry cannot utilise. The legal
frameworks and scientific principles which underpin this assessment
are clear. Carbon emitted in the generation of renewable
electricity from biomass is absorbed by and accounted for in the
growth of forest stock. This is based on well-established
principles set out by the UN Intergovernmental Panel on Climate
Change, which reaffirmed its long-standing position on sustainably
sourced biomass in 2019. This interpretation is reflected in the
European Union's second Renewable Energy Directive (REDII) and
Taxonomy rules, which mirror REDII. A third iteration of RED is
currently in development and builds on this increased ambition
around renewable energy deployment, including the continued
evolution of rules around sustainable biomass sourcing and a
greater role for BECCS, in addition to proposals to accelerate the
decarbonisation of sectors such as heavy industry, heating and
aviation.
We continue to identify opportunities to further reduce
greenhouse gas emissions at all stages of the supply chain and in
July 2022, we signed a memorandum of understanding with Japanese
shipping company MOL to develop wind assisted sail technologies for
use in shipping biomass.
Within the Group we remain committed to a programme of diversity
and inclusion, which includes the delivery of inclusive leadership
and management programmes, as well as the promotion of social
mobility through our graduate, apprenticeship and work experience
programmes.
Outlook - 2022 and beyond
In Pellet Production, we are focused on the continued production
of good quality pellets at the lowest cost and the expansion of our
production capacity and expect to take a final investment decision
on up to 500Kt of new capacity in the second half of the year.
In Generation, through the optimisation of our biomass
generation, we expect to deliver higher volumes of dispatchable
renewable power, when the UK system needs it most, supporting
decarbonisation, security of supply and ultimately helping to
reduce cost to the consumer.
In Customers, we are focused on opportunities to develop our
I&C business.
Our long-term focus is on progressing our strategy: to be a
global leader in sustainable biomass pellets; to be a global leader
in negative emissions; and to be a UK leader in dispatchable,
renewable generation. 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 other stakeholders.
We are making good progress with the delivery of our strategy
and will build on this as we continue to play an important role in
our markets as well as realising our purpose of enabling a zero
carbon, lower cost energy future, and our ambition to become a
carbon negative company by 2030, underpinned by the development of
BECCS.
CFO Financial Review
Six months ended
30 June 30 June 2021
2022
-------------------------------- -------- -------------
Financial performance
(GBPm) Total operating profit 207 84
-------------------------------- -------- -------------
Exceptional costs and
certain remeasurements (103) (8)
---------------------------------------------------------- -------- -------------
Adjusted operating profit 104 76
---------------------------------------------------------- -------- -------------
Adjusted depreciation,
amortisation, losses
on disposal of fixed
assets and income from
associates 121 89
---------------------------------------------------------- -------- -------------
Adjusted EBITDA from
continuing operations 225 165
---------------------------------------------------------- -------- -------------
Adjusted EBITDA from
discontinued CCGT operations - 21
---------------------------------------------------------- -------- -------------
Adjusted EBITDA from
continuing and discontinued
operations 225 186
---------------------------------------------------------- -------- -------------
Adjusted EBITDA
(GBPm) Pellet Production 45 40
-------------------------------- -------- -------------
Generation 205 165
---------------------------------------------------------- -------- -------------
Customers 24 (5)
---------------------------------------------------------- -------- -------------
Innovation, capital projects
and other costs (49) (35)
---------------------------------------------------------- -------- -------------
Discontinued CCGT operations - 21
---------------------------------------------------------- -------- -------------
Adjusted EBITDA from
continuing and discontinued
operations 225 186
---------------------------------------------------------- -------- -------------
Capital expenditure
(GBPm) Capital expenditure 60 71
-------------------------------- -------- -------------
Cash and Net Debt
(GBPm unless otherwise
stated) Cash generated from operations 185 138
-------------------------------- -------- -------------
Net Debt 1,101 1,029
---------------------------------------------------------- -------- -------------
Net Debt to Adjusted
EBITDA (times*) 2.5 2.5
---------------------------------------------------------- -------- -------------
Cash and committed facilities 539 666
---------------------------------------------------------- -------- -------------
Earnings (pence
per share) Adjusted Basic 20.0 14.6
-------------------------------- -------- -------------
Total Basic 37.2 6.2
---------------------------------------------------------- -------- -------------
Distributions (pence
per share) Interim dividend 8.4 7.5
-------------------------------- -------- -------------
*Adjusted EBITDA is calculated on a rolling last 12 months
basis.
Following the acquisition of Pinnacle in 2021, the Group
acquired investments with non-controlling interests. For the
purpose of alternative performance measures (Adjusted EBITDA,
Adjusted EPS and Net Debt), the Group excludes amounts directly
attributable to non-controlling interests from the values
disclosed. The amount of Adjusted EBITDA attributable to the
non-controlling interest in the six months ended 30 June 2022 is
immaterial.
The sale of Drax Generation Enterprise Ltd (which contained the
Group's CCGT portfolio) to VPI Generation Limited completed in
January 2021. The income, expenditure and cash flows for the
operations disposed of for the previous period and for the full
year ended 31 December 2021 have been presented as discontinued
operations. Income statement amounts presented in this financial
review are for continuing operations only unless otherwise stated.
Reconciliations between continuing, discontinued and total amounts
for each period are shown in the notes.
Tables in this financial review may not add down/across due to
rounding. References to 'the period' throughout refer to the six
months ended 30 June 2022. References to 'the comparative period'
throughout refer to the six months ended 30 June 2021.
Introduction
Adjusted EBITDA of GBP225 million in the period represents a 21%
increase on the GBP1 86 million achieved in the six months ended 30
June 2021. This strong performance reflects increased pellet sales,
a strong performance across our generation portfolio and improved
profitability in our Customers business. Results for the first half
of 2021 included an estimated GBP10-15 million adverse impact from
Covid-19, which has not recurred in 2022.
Excluding the discontinued gas operations, disposed of in
January 2021, Adjusted EBITDA from continuing operations increased
36% compared to the prior period .
Whilst we have seen some inflationary pressures in our biomass
cost base, most notably in respect of utilities and bunker fuel,
the integrated nature of our biomass supply chain and operations,
combined with long-term contracts in place for fibre, pellet
procurement and freight continue to provide a good level of
protection from any cost increases. Further, with indexation of UK
renewable schemes and third-party sales contracts, inflationary
pressure in our cost base is offset by revenue growth.
Total operating profit of GBP207 million compares to GBP84
million in the comparative period. In addition to the increase in
underlying earnings across each of our operating segments, this
result includes a net benefit of GBP103 million relating to
exceptional items and certain remeasurements, as described in note
6, which primarily reflects the incre asing value of future
contracts for the purchase of foreign currency as sterling has
weakened during the period.
Our Pellet Production business contributed GBP45 million of
Adjusted EBITDA in the six months to 30 June 2022, a 13% increase
on the GBP40 million for the comparative period. This was driven
primarily by a 54% increase in the volume of pellets produced. Our
pellet plants produced 2.0Mt of pellets in the first half of this
year and shipped 2.4Mt, compared to production and shipment of
1.3Mt in the first half of 2021. Of this volume, 1.0Mt was sold to
third parties (H1 2021: 0.4Mt).
The headline Free On Board (FOB) production cost (the cost of
producing biomass pellets and transferring them to a port in North
America for onwards transit) across the portfolio was $146/t, an
increase of 2% on the FY 2021 cost of $143/t primarily reflecting
the inflationary impact on utilities and bunker fuel noted above.
The increase in production costs is described in more detail
below.
The Generation business contributed GBP205 million of Adjusted
EBITDA, a 11% increase on the prior period (H1 2021: GBP185
million), which included GBP21 million from the discontinued CCGT
operations. Our biomass generation, pumped storage and hydro assets
all contributed to this increase, delivering good operational
performance, flexible generation and strong system support
services.
Against the backdrop of increasing concern around European
energy security, during the first half of 2022 we have optimised
our biomass generation and logistics (based on the amount of
available biomass across the year), buying back summer positions
and reprofiling biomass deliveries to move generation from summer
to winter periods, providing additional security of supply to the
UK at times of expected higher demand. We expect to benefit from
incrementally higher power prices in the winter period versus the
summer but have incurred additional cost to enable these
measures.
Our Customers business delivered Adjusted EBITDA of GBP24
million, a significant improvement on a GBP5 million loss in the
first half of 2021 which was impacted by Covid-19 - principally in
the SME business. Improved profitability also includes a benefit
from lower customer demand, with excess power sold back into the
wholesale market.
We continue to deliver strong cash generation with Cash
generated from operations of GBP185 million, representing growth of
34% compared to the prior period. While maintaining robust capital
discipline, our strong cash generation provides capacity to invest
in growth and support the payment of a sustainable and growing
dividend, in line with our long-standing capital allocation
policy.
We have strong liquidity, with available Cash and committed
facilities at the period end of GBP539 million (31 December 2021:
GBP549 million).
We closed the period with a Net Debt to Adjusted EBITDA ratio of
2.5 times (Adjusted EBITDA calculated on a last 12 months basis)
and continue to expect this will be significantly below 2.0 times
by the end of 2022.
Consistent with our policy to pay a dividend which is
sustainable and expected to grow, the Board has resolved to pay an
interim dividend of 8.4 pence per share (GBP34 million) and expects
this to be 40% of a full year dividend of 21.0 pence per share
(GBP84 million), subject to continued good operational performance
in the second half of the year. This represents an 11.7% increase
on 2021.
Adjusted EBITDA
Continuing and discontinued operations
The results of the CCGT assets, the sale of which completed on
31 January 2021, are presented as discontinued operations in the
prior year. The period to 30 June 2022 contained no results in
relation to discontinued operations. A reconciliation of the
results for the six months ended 30 June 2021 is contained within
note 6 to the Condensed consolidated interim financial
statements.
Pellet Production
The Pellet Production business contributed GBP45 million of
Adjusted EBITDA in the six months to 30 June 2022, a 13% increase
on the GBP40 million for the comparative period. This was driven
primarily by a 54% increase in the volume of pellets produced. Our
pellet plants produced 2.0Mt of pellets in the first half of this
year and shipped 2.4Mt, compared to production and shipment of
1.3Mt in the first half of 2021. Of this volume, 1.0Mt was sold to
third parties (H1 2021: 0.4Mt).
Since the start of the cost reduction programme in 2018 up until
the end of 2021, the headline FOB production cost (the cost of
producing biomass pellets and transferring them to a port in North
America for onwards transit) reduced $23/t (14%) and was $143/t for
the full year 2021.
Overall, our costs have been well controlled in the period,
however we have seen an increase of 2% in FOB production costs to
$146/t in the first half of 2022. This increase primarily reflects
the impact of inflation on utility costs (>20% increase) and
fuel surcharges (>10% increase). It also reflects higher average
production costs during commissioning of the plant at Demopolis in
Alabama which we expect to achieve full production capacity in the
second half of the year. Excluding these items, we continued to
make progress on our cost reduction initiatives with a small
reduction across the balance of production costs.
With continued good fibre availability and taking account of
changes in fibre mix by plant, there was no material change in
overall fibre cost.
During the period the Pellet Production business provided
flexibility in biomass supply, to support the reprofiling of
biomass generation at Drax Power Station. While this resulted in
some additional cost in Pellet Production during the first half of
the year, additional value was created for the Group across the
full year, demonstrating the value of our integrated business
model.
We continue to see opportunities for further cost reduction in
line with our strategy and will continue to optimise for value
across the group. In addition to increased production volumes from
existing plants, during the second half of the year we expect to
take final investment decisions on up to 500Kt of additional pellet
production capacity, continuing the progress towards our aim to
develop 8Mt of production capacity by 2030. Further future savings
will be delivered through widening our sustainable fibre envelope,
continued operational efficiencies across production and logistics
and development of new technologies and innovation.
In addition to the increase in production costs explained above,
there are other factors impacting Adjusted EBITDA in the period. We
have invested in non-production costs to support future growth
opportunities in North America, and achieved margins are also
impacted by the mix of where pellets are sourced (internally
produced or purchased from third parties) and whether those pellets
are sold internally or to third parties.
Generation
The Generation business contributed GBP205 million of Adjusted
EBITDA, a 11% increase on the prior period (H1 2021: GBP185
million), which included GBP21 million from the discontinued CCGT
operations. Our biomass generation, pumped storage and hydro assets
all contributed to this increase, delivering good operational
performance, flexible generation and strong system support
services. The Adjusted EBITDA increase was partially offset by
incremental optimisation and biomass reprofiling costs, and higher
system support charges.
During the period, biomass generation totalled 6.1TWh (H1 2021:
7.6TWh). The reduction is attributable to the optimisation of
biomass generation and logistics to deliver higher levels of
generation during the second half of the year, supporting security
of supply when demand is expected to be higher. There are no major
outages planned for the second half of the year across the
Generation portfolio, with the focus being on maintaining strong
operational availability and the delivery of high volumes of
dispatchable renewable generation.
To support the delivery of high levels of renewable biomass
generation at times of high demand, and mitigate the financial risk
associated with a forced outage in the current environment, we
expect to run increased baseload volume on all three ROC units,
holding the CfD unit to provide resilience in the event of an
unplanned outage. The outturn for the full year will therefore
depend on operational performance of the ROC units in the second
half of the year and the price achieved for any additional CfD
generation.
Our pumped storage and hydro assets continue to provide valuable
support services to the UK energy system and have performed
strongly from an operational perspective during a period of high
volatility. They contributed GBP53 million of Adjusted EBITDA in
the period, compared to GBP34 million in the first half of 2021, an
increase of 56%.
The system operator called our two legacy coal units into the
Balancing Mechanism for limited operations during January, to
support security of supply. These short-term measures helped to
stabilise the power system during periods of stress and did not
result in any significant increase in the Group's total carbon
emissions. The announced extension to the availability of the coal
units, as discussed in the Business Review, is expected to deliver
income in the final quarter of 2022 and first quarter of 2023.
Reflecting our policy of forward hedging power and the
optimisation of biomass generation to prioritise winter periods
over summer, the average contracted price of the ROC units has
increased to GBP88/MWh for 2022. In practice, we have moved summer
generation on our CfD unit to winter generation on the ROC units,
supporting the system at times we expect demand to be highest. In
some cases, this has involved buying back previously sold CfD
generation and reprofiling biomass shipments at additional
cost.
Customers
The Customers business contributed GBP24 million of Adjusted
EBITDA, a significant improvement from a loss of GBP5 million in
the comparative period, which included an estimated adverse impact
of GBP10-15 million from Covid-19. We continue to focus on customer
acquisition, credit control and cash collection. During the first
half of 2022 we also benefited from the resale of forward hedged
power which was not required by customers back into the merchant
market above the contracted rate.
Total volumes sold of 9.4TWh compares to 9.0TWh in the
comparative period, an increase of 4%. The business has also
achieved higher prices during the period, reflecting prevailing
market conditions.
Bad debt charges for the period totalled GBP26 million (H1 2021:
GBP8 million), which is stated net of a GBP3 million benefit in the
period (H1 2021: net of a GBP17 million benefit) in respect of
resolution of legacy credit balances. Price increases for
uncontracted customers during the period have been significantly
higher than for those customers on fixed-price contracts. The
overall bad debt provision of GBP54 million (representing 17% of
the gross trade receivables balance) compares to GBP47 million at
31 December 2021 (representing 20% of gross trade receivables).
Innovation, capital projects and other costs
Innovation, capital projects and other costs of GBP49 million
(H1 2021: GBP35 million) reflect increased spend on major projects
which have not yet reached the stage of capitalisation (Cruachan
II, for example), increased IT costs, predominantly driven by the
change in SaaS accounting, and additional share-based payment
charges because of an increase in the volume of options expected to
vest.
Total operating profit
Total operating profit for the period increased to GBP207
million, from GBP84 million in the comparative period. This
includes a net gain of GBP130 million from remeasurement gains and
losses on derivative contracts (H1 2021: a net gain of GBP20
million), reflecting favourable movements in the valuation of our
foreign exchange portfolio as sterling weakened during the first
half of 2022. This has been partially offset by adverse movements
in the valuation of commodity contracts which do not qualify for
hedge accounting, including gas and oil. For more detail on the
nature and valuation of our portfolio of derivative contracts, see
note 13 to the Condensed consolidated interim financial
statements.
Total operating profit also includes GBP27 million of
exceptional costs in the period (H1 2021: GBP12 million), as
described in note 6, of which GBP25 million relates to the
impairment of certain intangible assets. GBP6 million of this
relates to previously capitalised SaaS costs, following a change in
accounting policy on 1 January 2022. For more information on this
change in accounting policy, see the 'Basis of preparation' section
of the Condensed consolidated interim financial statements.
The remaining GBP19 million relates to a billing system where
the Group has stopped development and where proceedings have been
issued against the supplier to recover damages for
misrepresentation and breach of contract. The Group no longer
expects that any future economic benefit will be recovered as an
ongoing intangible asset. In accordance with accounting standards,
the previously capitalised balance has therefore been impaired.
Following consideration with external professional advisors, the
Group continues to believe this previously incurred expenditure
will be fully recovered from the supplier, and there has been no
change in this position during the period. Accordingly, an
associated contingent asset has been disclosed, see note 14.
Adjusted depreciation and amortisation costs of GBP121 million
increased by GBP32 million compared to the first half of 2021. Of
this, GBP13 million is attributable to the inclusion of Pinnacle
for a full six months in 2022, and GBP2 million to new sites. A
large part of the remaining increase reflects planned higher levels
of capital expenditure in relation to plant upgrades and capacity
expansions and includes some accelerated depreciation for existing
equipment that has been, or will be, replaced following capital
investments.
P rofit after tax and Earnings per share
Net interest charges for the period of GBP35 million are in line
with the comparative period (H1 2021: GBP34 million). A foreign
exchange credit of GBP28 million (H1 2021: GBP2 million) has
resulted from the weakening of sterling during the first half of
the year, and the subsequent revaluation of intercompany loans
denominated in foreign currencies. Further details on this are
included in note 4.
The effective tax rate applicable to the Group's Adjusted
pre-tax profits of 19% (H1 2021: 11%) is in line with the standard
rate of corporation tax in the UK and incorporates the effect of
higher tax rates in overseas jurisdictions. The increase in
effective tax rate from the 2021 full year rate of 12% is
attributable to an increase in profit before tax in the Group's UK
entities.
For interim periods, the effective tax rate is based on our
forecast tax rate for the full year, which continues to benefit
from patent box, research and development credits, and the
"super-deduction" for qualifying plant and machinery expenditure
that was announced in March 2021.
The exceptional deferred tax charge of GBP8 million in the
period relates to the corporation tax rate changes announced by the
UK Government in 2021, and the planned increase in headline rate
from 19% to 25% in April 2023.
Adjusted profit after tax attributable to the discontinued CCGT
operations was GBPnil during the period (H1 2021: GBP19 million).
The above factors all contributed to an Adjusted Basic earnings per
share figure of 20.0 pence (H1 2021: 14.6 pence) and a Total Basic
earnings per share figure of 37.2 pence (H1 2021: 6.2 pence).
Capital expenditure
Capital expenditure in the first half of the year totalled GBP60
million (H1 2021: GBP71 million). We expect capital expenditure
within the Generation business to be weighted towards the second
half of the year. Expenditure on the OCGT assets is expected to
increase, reaching up to GBP120 million by the end of 2022. With
GBP10 million of capital expenditure expected in H2 2022 following
final investment decision on new pellet plant capacity of up to
0.5Mt, we now expect full year capital expenditure to be in the
region of GBP290-GBP310 million.
Major sources of spend in the first half of the year included
maintenance and pellet plant development and expansions.
Cash and Net Debt
Cash generated from operations
Operating cash flow before movements in working capital and
defined benefit pension obligations for the period was GBP245
million (H1 2021: GBP141 million), reflecting the increase in Total
operating profit. Cash generated from operations, inclusive of
movements in working capital, of GBP185 million compares to GBP138
million in the prior period.
Total cash absorbed by working capital in the period was GBP56
million (H1 2021: GBP4 million released from working capital) as
shown in note 11 to the Condensed consolidated interim financial
statements.
Inventories increased during the period, resulting in part from
the reprofiling of generation into the second half of the year. The
facility available to accelerate cash flows associated with trade
receivables in the Customers business on a non-recourse basis was
extended during the first half of the year and increased in size by
GBP100 million to GBP300 million. The increased facility was fully
utilised during the period, resulting in a cash inflow of GBP100
million and a corresponding reduction in receivables. The overall
increase in payables during the period was driven by the cyclical
increase in ROC liabilities, offset by the return of collateral
deposits received during the second half of 2021, as the associated
trades matured. An increase in renewable certificate assets was
driven by generation in the period, partially offset by the
monetisation of ROCs using available facilities.
Net cash movements
Capital expenditure cash flows for the period totalled GBP83
million (H1 2021: GBP63 million), with full year capital
expenditure cash flows expected to be second half weighted, as
described above. Cash flows associated with capital expenditure on
the OCGT projects are expected to be significantly lower than the
accounting additions recorded in the second half of the year, as a
result of extended payment arrangements.
Corporation tax payments totalled GBP9 million (H1 2021: GBP8
million receipt), reflecting higher UK payments on account during
the current period in respect of the expected full year tax charge
for 2022.
Net Debt and Net Debt: Adjusted EBITDA
30 June 2022 30 June 2021 31 December 2021
GBPm GBPm GBPm
Cash and cash equivalents 288 406 317
------------- ------------- -----------------
Current Borrowings - (32) (41)
------------- ------------- -----------------
Non-Current Borrowings (1,388) (1,402) (1,320)
------------- ------------- -----------------
Net Debt before impact
of hedging (1,101) (1,029) (1,044)
------------- ------------- -----------------
Adjusted EBITDA* 225 186 398
------------- ------------- -----------------
Net Debt: Adjusted
EBITDA (times) 2.5 2.5 2.6
------------- ------------- -----------------
*Adjusted EBITDA is for the relevant period shown. The Net Debt:
Adjusted EBITDA ratio quoted uses a last 12 months figure.
As noted in the prior period, the cash and cash equivalents
balance at 30 June 2021 reflected several planned activities.
During July 2021, the Group completed the buy-out of a minority
interest in Alabama Pellets LLC for cash consideration of US$30
million, and also utilised approximately C$130 million of existing
cash reserves in part repayment of borrowings in the wider
refinancing of debt facilities acquired as part of the Pinnacle
transaction.
Our Net Debt: Adjusted EBITDA ratio remains higher than our
long-term target of 2.0 times at 30 June 2022, however, this is
expected to reduce to below this target by 31 December 2022.
Liquidity
30 June 2022 30 June 2021 31 December 2021
GBPm GBPm GBPm
Cash and cash equivalents 288 406 317
------------- ------------- -----------------
RCF available but not
utilised 250 245 231
------------- ------------- -----------------
Customers trade receivable - 15 -
facility available but
not utilised
------------- ------------- -----------------
Total cash and committed
facilities 539 666 549
------------- ------------- -----------------
Cash and committed facilities at 30 June 2022 of GBP539 million
(31 December 2021: GBP549 million) provides substantial headroom
over our short-term liquidity requirements. In addition to cash on
hand, the Group has access to both a C$10 million Revolving Credit
Facility (RCF) and a GBP300 million ESG RCF, to manage low points
in the cash cycle. The latter facility expires in 2024, with a
one-year extension clause. No cash has been drawn under this RCF
for over three years, but GBP56 million (31 December 2021: GBP74
million) has been drawn for letters of credit.
During the first half of the year, the Group utilised existing
cash reserves to repay its index-linked term loan facility, with a
total cash outflow of GBP41 million. A significant proportion, 65%,
of the Group's remaining debt falls due in a period over three
years from the Balance Sheet date. Our liquidity position remains
robust, with all three of our ratings agencies evaluating it as
strong.
Derivatives
We use derivatives, including cross-currency swaps, to hedge the
sterling cost of the interest payments and future principal
repayments in respect of our facilities denominated in foreign
currencies. A reconciliation of Net Debt incorporating the impact
of derivatives, in addition to Net Debt per the IFRS balance sheet,
is set out in note 10 to the Condensed consolidated interim
financial statements. At 30 June 2022, this resulted in Net Debt
adjusted for hedging of GBP1,116 million (31 December 2021:
GBP1,108 million).
The overall net outflow associated with rebasing activity in the
period was GBP3 million (H1 2021: net outflow of GBP27 million).
This was in relation to rebased cross-currency swaps and foreign
currency trades, where the rebasing occurred in 2020 or prior
financial years. At 30 June 2022 outstanding cash received from
rebased cross-currency swap trades was GBP45 million (31 December
2021: GBP48 million).
Distributions
In line with our long-standing capital allocation policy, the
Group is committed to paying a growing and sustainable dividend. At
the Annual General Meeting on 27 April 2022, shareholders approved
payment of a final dividend for the year ended 31 December 2021 of
11.3 pence per share. This dividend was paid on 13 May 2022.
On 25 July, the Board resolved to pay an interim dividend for
the six months ended 30 June 2022 of 8.4 pence per share (GBP34
million), representing 40% of the expected full year dividend. The
interim dividend will be paid on 7 October 2022 with a record date
of 26 August 2022.
Going concern
As described above, the Group's financial performance in the
first half of 2022 was strong, delivering improved profitability
and cash flows, and Net Debt consistent with the same period last
year.
Our financing platform is stable, with most of our principal
debt repayments due from 2025 onwards and significant liquidity
headroom available from both committed and uncommitted
facilities.
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 a
number of reasonably possible downside scenarios. 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 for the foreseeable future across a
range of scenarios. Consequently, the directors have a reasonable
expectation that the Group will continue in existence for the next
12 months and therefore have adopted the going concern basis when
preparing the Condensed consolidated interim financial
statements.
The contents of the Business and Financial reviews were approved
by the Board on 25 July 2022.
Principal risks and uncertainties
The Group's financial and operating performance is subject to
various risks and uncertainties. Several of these risks are not
directly within the Group's control, such as the wider economic and
political environment. We seek to manage and address the potential
impact of the risks faced by the Group in accordance with policies
approved by the Board and management, applying the Group's risk
management framework. The Board assesses the risks and
uncertainties, considering the changes to those risks over time,
the possible measures to mitigate such risks and the approach which
might be taken in managing residual risks to the Group.
The Board, as part of its half year processes, considered
reports from management reviewing the principal risks and
uncertainties and how these might evolve during the second half of
2022. This review took account of the ongoing Russia-Ukraine
conflict, the impacts on the energy markets, the cost-of-living
crisis, and the agreement reached with National Grid to make our
two coal-fired units at Drax Power Station available to operate
until the end of March 2023. All of these areas are discussed
further below.
As a result of their assessment, and consideration of the below
factors, the Board concluded that the financial exposure from an
unplanned plant outage had increased. Whilst there has been no
change to the integrity of the Group's plant and machinery,
volatility and increases in system prices could result in
materially increased costs should an unplanned outage occur. This
is discussed further below. The Board is satisfied that the Group's
other principal risks, as reported as part of the 2021 Annual
report and accounts, all remain materially unchanged.
Recruitment and retention of staff continues to be a challenge
for many sectors in the UK. The Group continues to monitor the
availability of candidates against the current and future skill
requirements to meet our growth plans and believe that the progress
being made is sufficient to meet foreseeable business needs.
Further details of the Group's principal risks and uncertainties
can be found on pages 76 - 91 of the 2021 Annual report and
accounts, which is available at www.drax.com .
Russia-Ukraine conflict
Russian forces invaded Ukraine in February 2022 which has not
only created a humanitarian crisis but has led to extensive
economic impacts felt across the globe. Whilst the volume of
Russian and Belarusian biomass purchased by the Group has
historically been very low, this line of sourcing was ceased with
no significant impact on our ability to achieve required future
biomass volumes. All efforts have been made to support our partners
who operate in Ukraine and contribute to humanitarian efforts,
including a donation to the Disasters Emergency Committee Ukraine
Humanitarian Appeal.
A committee has been established with the responsibility of
undertaking cross-functional analysis, risk identification and
mitigation activities to respond to the impact of the conflict on
the Group. Due diligence and screening are ongoing to ensure that
the Group is not trading with any Russian or Belarusian
counterparties.
The conflict is testing global supply chains and reinforces the
importance of resilience in the Group's biomass sourcing processes.
Whilst the impact on the Group's direct supply chain has been
minimal due to the very low number of Russian and Belarusian
suppliers historically used by the business, there are indications
of a secondary impact on the business' indirect supply chains. This
is materialising in the form of upward biomass pricing pressures as
suppliers have increased costs to procure fibre due to market
shortages and inflationary pressures. The impacts of higher short
term biomass prices are mitigated however by our biomass hedging
strategy which ensures a large proportion of the long term biomass
contracts in place have agreed pricing.
In addition to remaining vigilant to biomass pricing pressure,
the ability of our suppliers to fulfil contracted volumes will also
remain under review due to the impact of fibre market shortages
associated with the Russia-Ukraine conflict.
Geopolitical tensions have in the past been known to result in
increased cyber related incidents. Accordingly, the Russia-Ukraine
conflict has increased the Group's risk exposure to attacks on our
systems, and those of suppliers on whom the Group relies for
integrity of service. Recent cyber-attacks across Europe have
included specific targeted attempts on critical infrastructure,
including an attack on a major service provider that saw disruption
of 5,800 wind turbines in Germany.
The Group's Security and IT teams have conducted a thorough risk
assessment of our externally facing infrastructure and have
implemented a robust critical patch regime as a result of this
heightened cyber security threat. Whilst the business' response to
the heightened risk has been robust, it is acknowledged that
cyber-attacks are continuously increasing in sophistication and
complexity, requiring constant assessment and response to address
any vulnerabilities on an ongoing basis.
The Russia-Ukraine conflict has also contributed to widespread
energy market volatility due to the restriction of Russian gas. The
resulting commodity price increases are discussed further
below.
Cost of living and energy market conditions
Since late 2021, the UK has been experiencing increasing
pressure on the cost of living due to high inflation. In the first
half of 2022 the government has announced measures designed to
mitigate these pressures, including a GBP16 billion package of
targeted support. However, it is expected that inflation will
continue to increase at a faster rate than average incomes during
the second half of the year.
We recognise that the inflationary pressures from rising
commodity prices, including power, are providing challenges to
consumers and in some cases causing hardship. We continue to
monitor how wholesale power price increases are feeding through to
end consumers in our Customers business. By building on the actions
taken during the Covid-19 pandemic, we aim to support our customers
during this challenging time by working to provide payment plans or
payment holidays where necessary. We remain alert to the
possibility that this may have an impact on our customers' ability
to pay their bills, resulting in a potential financial impact of
bad debt or delayed payments.
What initially appeared to be temporary energy price volatility
resulting from short term pressures on supply at the start of 2022,
now looks to be a more sustained energy price increase. This is due
to a variety of factors including outages at French nuclear power
stations and Russian gas constraints, creating the potential for
continued elevated power prices across Europe. This exposes the
business to an increased financial cost should we incur an
unplanned outage on plant, as the business would incur the cost of
a significantly heightened market price to buy back the volumes
contracted but undelivered. Whilst we do not believe the integrity
of the Group's plant and machinery, and therefore the likelihood of
an outage, has increased, the financial impact of such an
occurrence has increased and could have a material impact on the
Group's results. This risk is being managed appropriately through
the business' ability to hold back a proportion of capacity as a
mitigation. Price increases in the forward market can also present
challenges in respect of liquidity and credit, requiring careful
management of both ongoing exposures and collateral
requirements.
The UK Government has publicly signalled the possibility of
energy market reform, however it currently remains unclear the
scale of the impact of any such reform, or potential related
changes in taxation policy.
Continued operation of coal-fired units beyond September
2022
In July 2022 the Group confirmed that, at the request of the UK
Government, it had entered into an agreement with National Grid to
make our two coal-fired units at Drax Power Station available to
operate until the end of March 2023. The units will provide a
"winter contingency" service to the UK power system and will only
operate if and when instructed to do so by National Grid. Whilst
this means prolonging the UK's dependence on fossil fuels, which is
not aligned with the Group's strategy, we recognise that as part of
the UK's critical national infrastructure, we play a key role in
providing security of supply and take this responsibility
seriously.
Some of the Group's facilities and equipment relating to
coal-fired generation are classed as ageing assets given Drax Power
Station was built approximately fifty years ago. Continued
operation of these assets therefore brings operational risks in
maintaining the availability of assets to fulfil a request to
operate. In seeking to ensure the assets are operationally ready,
Drax will require extended supply contracts relating to
maintenance, materials and Health and Safety. Delays in renewing
and placing such contracts could have an impact on the ability of
management to secure operational readiness of the coal-fired
assets.
The Group is working with operational colleagues to ensure that
sufficient resource is available to safely run six generating
units, as opposed to the previously expected four units, during
this period. The Group is also cognisant that the extended use of
the coal-fired units increases the threat of disruption to the
Group's operations and supply chain from protester action.
Before committing to extending the availability of the
coal-fired units, a thorough assessment was undertaken to ensure
these potential risks could be sufficiently managed to an
acceptably low level. In addition, this six-month extension is not
expected to impact on the timing of a final investment decision or
intended commissioning date for the BECCS project. Site preparation
works for BECCS are ongoing and will accelerate following formal
closure of the coal units in March 2023.
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
a) The condensed set of financial statements has been prepared
in accordance with IAS 34 "Interim Financial Reporting";
b) The interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
c) The interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related party
transactions and changes therein).
By order of the Board
Will Gardiner
Chief Executive Officer
25 July 2022
Condensed consolidated interim financial statements
Introduction
The Condensed consolidated interim financial statements provide
information about the financial performance (Condensed consolidated
income statement and Condensed consolidated statement of
comprehensive income), financial position (Condensed consolidated
balance sheet), and cash flows (Condensed consolidated cash flow
statement) of Drax Group plc (the Company) together with all of the
entities controlled by the Company (collectively, the Group).
The notes to the financial statements provide additional
information on certain items in the Condensed consolidated income
statement, Condensed consolidated statement of comprehensive
income, Condensed consolidated balance sheet and Condensed
consolidated cash flow statement. In general, the additional
information in the notes to the financial statements is required by
International Financial Reporting Standards (IFRS), other
regulations or has been included to facilitate increased
understanding of the condensed primary statements.
Basis of preparation
The Condensed consolidated interim financial statements have
been prepared using accounting policies consistent with IFRS as
adopted by the UK and in accordance with IAS 34 'Interim Financial
Reporting'. The information provided in respect of the year ended
31 December 2021 does not constitute statutory accounts as defined
in Section 434 of the Companies Act 2006 but is derived from those
accounts. A copy of the statutory accounts for that year has been
delivered to the Registrar of Companies. The auditor's report on
those accounts was not qualified, did not draw attention to any
matters by way of emphasis and did not contain statements under
Section 498(2) or (3) of the Companies Act 2006.
The Condensed consolidated interim financial statements have
been prepared on the going concern basis and on the historical cost
basis, except for certain assets and liabilities that have been
measured at fair value (principally derivative financial
instruments) and the assets and liabilities of the Group's defined
benefit pension schemes (measured at fair value and using the
projected unit credit method respectively).
See the CFO Financial Review for further details on the
application of the going concern basis.
Condensed consolidated income statement amounts referred to
herein are for continuing operations unless otherwise stated. The
discontinued operations relate to the results of the Combined Cycle
Gas Turbine (CCGT) generation portfolio sold to VPI Generation
Limited on 31 January 2021 (see pages 235 - 237 of the Group's 2021
Annual report and accounts for further details).
Reconciliations of Adjusted EBITDA between continuing,
discontinued, and combined amounts for each period are shown in
note 6.
The Condensed consolidated interim financial statements were
approved by the Board on 25 July 2022.
Change in accounting policy
In 2021, the IFRS Interpretations Committee (IFRS IC) finalised
its agenda decision regarding how to account for costs of
configuring or customising a supplier's application software in a
Software as a Service (SaaS) arrangement that conveys to the
customer the right to receive access to the supplier's application
software over the contract term.
The agenda decision concluded that the right to receive access
does not provide the customer with a software asset and therefore
the access to the software is a service that the customer receives
over the contract term. The agenda decision also concluded that
often the configuration and customisation costs do not result in an
intangible asset of the customer. Therefore, these costs should be
recognised as an expense over the period to which they relate.
In limited circumstances, certain configuration and
customisation activities may result in a separate asset controlled
by the customer. If this is the case the asset should be assessed
as to whether it is separately identifiable and if it meets the
recognition criteria of IAS 38 'Intangible Assets'.
Any changes resulting from this agenda decision are a change in
accounting policy. Assessing the impact of the agenda decision on
the Group required detailed analysis of the historical amounts
capitalised. The Group has now concluded its analysis on the impact
of this agenda decision and has subsequently applied a new
accounting policy for SaaS costs, consistent with the agenda
decision, from 1 January 2022.
SaaS costs capitalised by the Group at 31 December 2021 and
impacted by this change in accounting policy had a net book value
of GBP5.7 million. As the impact of this change in accounting
policy is immaterial, and the new policy has been applied
prospectively from 1 January 2022, no restatement of prior periods
has been necessary. The net book value of all SaaS costs
capitalised at 1 January 2022 have been written off in the current
period as an exceptional cost (see note 6). SaaS costs incurred
from 1 January 2022 have been recognised in Operating and
administrative expenses.
Adoption of new and amended accounting standards
The accounting policies adopted in the preparation of the
Condensed consolidated interim financial statements are consistent
with those followed in the preparation of the Group's 2021 Annual
report and accounts, except for the change in accounting policy for
SaaS costs (see Change in accounting policy section above for
further details) and the adoption of new standards, interpretations
and amendments effective as of 1 January 2022. The adoption of new
standards, interpretations and amendments in the current year has
not had a material impact. The Group has not early-adopted any
other standard, interpretation or amendment that has been issued
but is not yet effective at 30 June 2022.
A full listing of new standards, amendments, and pronouncements
under IFRS applicable to these Condensed consolidated interim
financial statements is presented in note 15.
Judgements and estimates
The preparation of financial statements requires judgement to be
applied in forming the Group's accounting policies. It also
requires the use of estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expenses.
Actual results may subsequently differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis, with revisions recognised in the period in which the
estimates are revised and in any future periods affected.
Judgements are also reviewed on an ongoing basis to ensure they
remain appropriate. These reviews have concluded that the
significant judgements and key sources of estimation uncertainty
applicable to the preparation of the Condensed consolidated interim
financial statements are the same as those described on pages
180-181 of the Group's 2021 Annual report and accounts. In each
case, judgements have been applied consistently and estimates made
using a consistent methodology, with inputs and assumptions updated
to reflect the Group's latest forecasts and prevailing market
conditions at the balance sheet date as appropriate.
Comparative information
The Group provides comparative financial information in these
Condensed consolidated interim financial statements for both the
six months ended 30 June 2021 and the year ended 31 December 2021.
Where included within text, income statement comparatives refer to
the six months ended 30 June 2021 and balance sheet comparatives
are as at 31 December 2021, unless otherwise stated.
On 31 January 2021, the Group completed the sale of its CCGT
generation portfolio to VPI Generation Limited . The Group also
acquired Pinnacle Renewable Energy Inc. (Pinnacle) on 13 April
2021. As such the Condensed consolidated interim financial
statements for the six months ended 30 June 2021 include one month
of results of the CCGT assets, the profit on disposal of the CCGT
assets, and two and a half months of results for Pinnacle. Whereas
the six months ended 30 June 2022 include no results for the CCGT
assets, or profit on disposal of the CCGT assets and includes a
full six months of results for Pinnacle. As such, the six months
ended 30 June 2022 and 2021 may not be directly comparable. See
pages 229 - 231 and 235 - 237 of the Group's 2021 Annual report and
accounts for further details on the acquisition and results of
Pinnacle, and the disposal and results of the CCGT assets, in
2021.
Pinnacle acquisition
The Group acquired Pinnacle on 13 April 2021. The Group had a
one-year measurement period from this date to finalise the
acquisition accounting. There were no changes during the period to
the acquisition date fair values of the identifiable assets
acquired, liabilities assumed or the non-controlling interests,
that were recognised in the Group's 2021 Annual report and
accounts. See pages 229 - 231 of the Group's 2021 Annual report and
accounts for further details on the acquisition fair values
recognised.
Alternative Performance Measures (APMs)
The Group uses APMs throughout the Interim Report 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 performance. These measures have been defined
internally and may therefore not be comparable to similar 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 by IFRS. Such measures
should not be viewed in isolation or as an alternative to the
equivalent IFRS measure.
Defined below are the key APMs used by the Board to assess
performance. See the APMs glossary table at the end of this report
for full details of all APMs used, the APM's closest IFRS
equivalent, the reason why the APM is used by the Group and a
definition of how the APM is calculated.
Adjusted Results
The Group's financial performance for the period, measured in
accordance with IFRS, is shown in the Total Results column on the
face of the Condensed consolidated income statement. Exceptional
items and certain remeasurements, including the tax thereon, are
deducted from the Total Results in arriving at the Adjusted Results
for the period. The Group's Adjusted Results are consistent with
the way executive management and the Board 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 financial statements in evaluating
the Group's trading performance and performance against strategic
objectives.
Adjusted basic earnings per share
Adjusted basic earnings per share is Adjusted profit from
continuing and discontinued operations attributable to the owners
of the Parent Company divided by the weighted average number of
shares outstanding. This is the same denominator used when
calculating basic earnings/(loss) per share. This metric is used in
discussions with the investor community and is one of the
performance conditions under the Long-Term Incentive Plan
(LTIP).
Adjusted EBITDA
Adjusted EBITDA is earnings before interest, tax, depreciation,
amortisation, gains and losses on disposal of assets and impairment
of non-current assets, excluding the impact of exceptional items
and certain remeasurements (defined below). Adjusted EBITDA is the
primary measure used by executive management and the Board to
assess the financial performance of the Group as it provides a more
comparable assessment of the Group's trading performance
period-on-period. It is also a key metric used by the investor
community to assess the performance of our operations and a key
measure in the Group's balanced scorecard.
Following the acquisition of Pinnacle on 13 April 2021, the
Group acquired investments in associates and investments with
non-controlling interests. Adjusted EBITDA excludes any earnings
from associates and amounts directly attributable to
non-controlling interests.
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.
For a transaction to be considered exceptional, management
considers the nature of the transaction, the frequency of similar
events, any related precedent and the commercial context.
Presentation of a transaction as exceptional is approved by the
Audit Committee in accordance with an agreed policy.
Certain remeasurements comprise fair value gains and losses on
derivative contracts to the extent those contracts do not qualify
for hedge accounting, or hedge accounting is not effective, which
under IFRS are recorded in revenue, cost of sales, interest payable
and similar charges, or foreign exchange gains/(losses). Management
believes adjusting for fair value gains and losses recognised on
derivative contracts provides readers of the accounts with useful
information as this removes the volatility caused by movements in
market prices over the life of the derivative. The Group regards
all of its forward contracting activity to represent economic
hedges and therefore the contracted price at delivery or maturity
is relevant to the Group and its performance, rather than how the
contracted price compares to the current market price, as the Group
is not seeking to make trading profits through market price
movements.
The impact of excluding these fair value remeasurements is to
reflect commodity sales and purchases at contracted prices (the
price paid or received in respect of delivery of the commodity in
question), taking into account the impact of associated financial
trading (such as forward foreign currency purchases), in Adjusted
Results. The result of this adjustment shows the impact in revenue,
cost of sales, interest payable and similar charges, and foreign
exchange gains/(losses) at the time the transaction takes
place.
Further information on exceptional items and certain
remeasurements in the current and comparative periods is included
in note 6 to the Condensed consolidated interim financial
statements.
Net Debt
The Group defines Net Debt as total borrowings less cash and
cash equivalents. Total borrowings includes external financial
debt, such as loan notes, term loans and amounts drawn in cash
under revolving credit facilities (RCF) (see note 9) but excludes
other financial liabilities such as lease liabilities calculated in
accordance with IFRS 16 'Leases', pension obligations and trade and
other payables.
As noted above, 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 assets. The
exclusion of lease liabilities from the calculation of Net Debt is
also consistent with the Group's covenant reporting requirements.
Further information on Net Debt can be seen in note 10.
Following the acquisition of Pinnacle on 13 April 2021, the
Group acquired investments with non-controlling interests. Net
Debt, as defined by the Group, excludes the proportion of Net Debt
that is attributable to non-controlling interests.
Some of the Group's debt is denominated in foreign currencies
and the Group has entered into hedging arrangements in relation to
this debt. Therefore, the Group also discloses Net Debt after the
impact of relevant currency hedging derivatives. This adjusts the
borrowings figure included in the Net Debt calculation to take into
account the effect of financial instruments entered into to hedge
movements in foreign exchange rates in relation to debt principal
repayments. The Directors believe that this measure provides useful
information about the economic substance of the Group's Net Debt
position.
Net Debt is a key measure of the Group's liquidity, its ability
to manage current obligations. It is also used as a basis by debt
rating agencies, the investor community and in the calculation of
the Group's financial covenant requirements.
Net Debt to Adjusted EBITDA ratio
This is the ratio of Net Debt to Adjusted EBITDA from continuing
and discontinued operations for the rolling 12-month period,
expressed as a multiple. The Group has a long-term target for Net
Debt to Adjusted EBITDA of around 2.0 times.
Condensed consolidated income statement
Six months ended 30 June Six months ended 30 June
2022 (Unaudited) 2021 (Unaudited)
------ ------------------------------------------ ------------------------------------------
Exceptional Exceptional
Adjusted items and Adjusted items
Results certain Total Results and certain Total
( (1) remeasure-ments Results ( (1) remeasure-ments Results
Notes GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
Revenue 3 3,621.5 (64.4) 3,557.1 2,177.6 (3.5) 2,174.1
Cost of sales (3,134.7) 194.0 (2,940.7) (1,807.0) 23.4 (1,783.6)
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
Gross profit 486.8 129.6 616.4 370.6 19.9 390.5
Operating and
administrative
expenses(2) (235.7) (1.6) (237.3) (197.6) (11.9) (209.5)
Impairment losses
on financial assets (26.4) - (26.4) (8.0) - (8.0)
Depreciation (105.4) - (105.4) (72.3) - (72.3)
Amortisation (15.2) - (15.2) (16.6) - (16.6)
Impairment of
non-current
assets - (24.9) (24.9) - - -
Losses on disposal
of assets (1.0) - (1.0) - - -
Income from
associates 0.8 - 0.8 0.1 - 0.1
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
Operating profit 103.9 103.1 207.0 76.2 8.0 84.2
Foreign exchange
gains/(losses) 4 28.4 - 28.4 1.9 (0.2) 1.7
Interest payable
and similar charges 4 (36.4) (0.2) (36.6) (34.5) - (34.5)
Interest receivable 4 1.1 - 1.1 0.4 - 0.4
Profit before tax 97.0 102.9 199.9 44.0 7.8 51.8
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
Tax:
Before impact of
changes in tax rates (18.0) (26.2) (44.2) (4.9) (5.5) (10.4)
Effect of changes
in tax rates - (7.8) (7.8) - (47.7) (47.7)
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
Total tax charge 5 (18.0) (34.0) (52.0) (4.9) (53.2) (58.1)
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
Net profit/(loss)
from continuing
operations (3) 79.0 68.9 147.9 39.1 (45.4) (6.3)
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
Net profit from
discontinued
operations - - - 18.7 12.0 30.7
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
Profit/(loss) for
the period 79.0 68.9 147.9 57.8 (33.4) 24.4
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
Attributable to:
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
Owners of the Parent
Company 80.0 68.9 148.9 58.0 (33.4) 24.6
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
Non-controlling
interests (1.0) - (1.0) (0.2) - (0.2)
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
Earnings/(loss) Pence Pence Pence Pence
per share
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
For net result
for the period from
continuing operations
attributable to
the owners of the
Parent Company
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
- Basic 7 20.0 37.2 9.9 (1.5)
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
- Diluted 7 19.3 35.9 9.6 (1.5)
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
For net result
for the period
attributable
to the owners of
the Parent Company
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
- Basic 7 20.0 37.2 14.6 6.2
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
- Diluted 7 19.3 35.9 14.2 6.0
---------------------- ------ ----------- ----------------- ---------- ----------- ----------------- ----------
A comparative income statement for the year ended 31 December
2021 is reproduced in note 16.
(1) Adjusted Results are stated after adjusting for exceptional
items (including integration and restructuring costs, impairment of
non-current assets and certain remeasurements). See note 6 for
further details.
(2) The 30 June 2021 Operating and administrative costs have
been re-presented to include GBP11.9 million of acquisition and
restructuring costs.
(3) Profit from continuing operations of GBP147.9 million (2021:
GBP(6.3) million loss) is inclusive of GBP(1.0) million (2021:
GBP(0.2) million) attributable to non-controlling interests.
Condensed consolidated statement of comprehensive income
Six months ended 30 June
------------------------------
2022 2021
(Unaudited) (Unaudited)
GBPm GBPm
-------------------------------------------------- -------------- --------------
Profit for the period 147.9 24.4
-------------------------------------------------- -------------- --------------
Items that will not subsequently be reclassified
to profit or loss:
Remeasurement gains/(losses) on defined
benefit pension schemes 25.7 (0.4)
Deferred tax on remeasurement of defined
benefit pension schemes (6.3) (0.6)
Net fair value (losses)/gains on cost of
hedging (31.8) 4.8
Deferred tax on cost of hedging 5.9 (4.8)
Net fair value gains/(losses) on cash flow
hedges 183.1 (4.1)
Deferred tax on cash flow hedges (43.2) 4.7
Items that may subsequently be reclassified
to profit or loss:
Exchange differences on translation of foreign
operations 51.1 ( 0.8)
Net fair value losses on cash flow hedges (420.9) (29.9)
Net gains on cash flow hedges reclassified
to the Condensed consolidated income statement 6.8 36.4
Deferred tax on cash flow hedges 103.3 (2.0)
Other comprehensive (expense)/income for
the period (126.3) 3.3
-------------------------------------------------- -------------- --------------
Total comprehensive income for the period
attributable to equity holders 21.6 27.7
-------------------------------------------------- -------------- --------------
Attributable to:
-------------------------------------------------- -------------- --------------
Owners of the Parent Company 19.8 28.7
-------------------------------------------------- -------------- --------------
Non-controlling interests 1.8 (1.0)
-------------------------------------------------- -------------- --------------
Condensed consolidated balance sheet
As at 31
As at 30 June December
------ ------------------------------ -----------
2021
2022 2021 (Audited)
(Unaudited) (Unaudited)
Notes GBPm GBPm GBPm
------------------------------------------ ------ -------------- -------------- -----------
Assets
Non - current assets
Goodwill 431.6 412.6 416.3
Intangible assets 156.7 208.2 188.6
Property, plant and equipment 2,327.0 2,228.8 2,310.7
Right-of-use assets 124.3 122.6 119.8
Investments 7.5 6.1 5.5
Retirement benefit surplus 78.5 14.6 48.9
Deferred tax assets 28.0 71.6 28.7
Derivative financial instruments 13 439.2 125.9 357.5
------------------------------------------ ------ -------------- -------------- -----------
3,592.8 3,190.4 3,476.0
------------------------------------------ ------ -------------- -------------- -----------
Current assets
Inventories 281.7 203.8 199.1
Renewable certificate assets 357.0 407.1 301.4
Trade and other receivables and contract
- related assets 673.5 391.8 641.9
Derivative financial instruments 13 1,458.8 401.7 888.6
Current tax assets - 5.9 -
Cash and cash equivalents 288.4 405.7 317.4
3,059.4 1,816.0 2,348.4
------------------------------------------ ------ -------------- -------------- -----------
Liabilities
Current liabilities
Trade and other payables and contract
- related liabilities (1,326.8) (1,027.8) (1,211.1)
Lease liabilities (17.2) (11.9) (15.1)
Current tax liabilities (1.5) - (3.4)
Borrowings 9 - (31.9) (40.6)
Derivative financial instruments 13 (1,706.1) (491.7) (962.7)
(3,051.6) (1,563.3) (2,232.9)
------------------------------------------ ------ -------------- -------------- -----------
Net current assets 7.8 252.7 115.5
------------------------------------------ ------ -------------- -------------- -----------
Non - current liabilities
Borrowings 9 (1,388.4) (1,401.9) (1,320.4)
Lease liabilities (116.2) (111.9) (110.8)
Derivative financial instruments 13 (523.8) (168.1) (541.8)
Provisions (74.3) (84.5) (86.4)
Deferred tax liabilities (202.0) (303.5) (225.3)
-----------
(2,304.7) (2,069.9) (2,284.7)
------------------------------------------ ------ -------------- -------------- -----------
Net assets 1,295.9 1,373.2 1,306.8
------------------------------------------ ------ -------------- -------------- -----------
Shareholders' equity
Issued equity 47.9 47.5 47.7
Share premium 433.1 431.3 432.2
Hedge reserve (336.2) (65.1) (177.4)
Cost of hedging reserve 42.5 81.6 78.5
Other reserves 754.3 697.3 706.0
Retained profits 329.5 138.1 198.3
------------------------------------------ ------ -------------- -------------- -----------
Total equity attributable to owners
of the Parent Company 1,271.1 1,330.7 1,285.3
------------------------------------------ ------ -------------- -------------- -----------
Non-controlling interests 24.8 42.5 21.5
------------------------------------------ ------ -------------- -------------- -----------
Total shareholders' equity 1,295.9 1,373.2 1,306.8
------------------------------------------ ------ -------------- -------------- -----------
Condensed consolidated statement of changes in equity
Cost
Issued Share Hedge of hedging Other Retained Non-controlling
equity premium reserve reserve reserves(1) profits interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- --------- --------- ------------ ------------ --------- ----------------- --------
At 1 January 2021 47.5 430.0 (76.0) 87.2 697.3 153.4 - 1,339.4
------------------ -------- --------- --------- ------------ ------------ --------- ----------------- --------
Profit/(loss) for
the year - - - - - 79.7 (0.5) 79.2
Other
comprehensive
(expense)/income - - (127.1) 9.6 8.7 28.9 (2.6) (82.5)
------------------ -------- --------- --------- ------------ ------------ --------- ----------------- --------
Total
comprehensive
(expense)/income
for the year - - (127.1) 9.6 8.7 108.6 (3.1) (3.3)
Equity dividends
paid - - - - - (70.9) - (70.9)
Issue of share
capital 0.2 2.2 - - - - - 2.4
Acquisition of
subsidiary
with
non-controlling
interests - - - - - - 39.6 39.6
Investment from
non-controlling
interests - - - - - - 6.5 6.5
Transactions with
non-controlling
interests - - - - - (0.2) (21.5) (21.7)
------------------ -------- --------- --------- ------------ ------------ --------- ----------------- --------
Total
transactions
with the owners
in their
capacity
as owner 0.2 2.2 - - - (71.1) 24.6 (44.1)
Movements on cash
flow hedges
released
directly from
equity - - 33.2 - - - - 33.2
Deferred tax on
cash flow hedges
released
directly
from equity - - (7.5) - - - - (7.5)
Movement on cost
of hedging
released
directly from
equity - - - (23.7) - - - (23.7)
Deferred tax on
cost of hedging
released
directly
from equity - - - 5.4 - - - 5.4
Movement in
equity
associated with
share - based
payments - - - - - 7.4 - 7.4
------------------ -------- --------- --------- ------------ ------------ --------- ----------------- --------
At 31 December
2021 47.7 432.2 (177.4) 78.5 706.0 198.3 21.5 1,306.8
------------------ -------- --------- --------- ------------ ------------ --------- ----------------- --------
At 1 January 2021 47.5 430.0 (76.0) 87.2 697.3 153.4 - 1,339.4
------------------ -------- --------- --------- ------------ ------------ --------- ----------------- --------
Profit/(loss) for
the period - - - - - 24.6 (0.2) 24.4
Other
comprehensive
income/(expense) - - 5.1 - - (1.0) (0.8) 3.3
------------------ -------- --------- --------- ------------ ------------ --------- ----------------- --------
Total
comprehensive
income/(expense)
for the period - - 5.1 - - 23.6 (1.0) 27.7
Equity dividends
paid - - - - - (41.0) - (41.0)
Issue of share
capital - 1.3 - - - - - 1.3
Acquisitions - - - - - - 40.1 40.1
Investment from
non-controlling
interests - - - - - - 3.4 3.4
------------------ -------- --------- --------- ------------ ------------ --------- ----------------- --------
Total
transactions
with owners in
their
capacity as
owner - 1.3 - - - (41.0) 43.5 3.8
Movements on cash
flow hedges
released
directly from
equity - - 7.4 - - - - 7.4
Deferred tax on
cash flow hedges
released
directly
from equity - - (1.6) - - - - (1.6)
Movement on cost
of hedging
released
directly from
equity - - - (7.2) - - - (7.2)
Deferred tax on
cost of hedging
released
directly
from equity - - - 1.6 - - - 1.6
Movement in
equity
associated with
share - based
payments - - - - - 2.1 - 2.1
------------------ -------- --------- --------- ------------ ------------ --------- ----------------- --------
At 30 June 2021 47.5 431.3 (65.1) 81.6 697.3 138.1 42.5 1,373.2
------------------ -------- --------- --------- ------------ ------------ --------- ----------------- --------
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 period - - - - - 148.9 (1.0) 147.9
Other comprehensive
(expense)/income - - (170.9) (25.9) 48.3 19.4 2.8 (126.3)
------------------------- ----- ------ -------- ------- ------ ------- ------- --------
Total comprehensive
(expense)/income
for the period - - (170.9) (25.9) 48.3 168.3 1.8 21.6
Equity dividends
paid - - - - - (45.2) - (45.2)
Issue of share capital 0.2 0.9 - - - - - 1.1
Investment from
non-controlling
interests - - - - - - 1.5 1.5
Total transactions
with owners in their
capacity as owner 0.2 0.9 - - - (45.2) 1.5 (42.6)
Movements on cash
flow hedges released
directly from equity - - 15.9 - - - - 15.9
Deferred tax on
cash flow hedges
released directly
from equity - - (3.8) - - - - (3.8)
Movement on cost
of hedging released
directly from equity - - - (13.3) - - - (13.3)
Deferred tax on
cost of hedging
released directly
from equity - - - 3.2 - - - 3.2
Movement in equity
associated with
share - based payments - - - - - 4.5 - 4.5
Deferred tax on
share- based payments - - - - - 3.6 - 3.6
------------------------- ----- ------ -------- ------- ------ ------- ------- --------
At 30 June 2022 47.9 433.1 (336.2) 42.5 754.3 329.5 24.8 1,295.9
------------------------- ----- ------ -------- ------- ------ ------- ------- --------
(1) Other comprehensive income in respect of other reserves
relates wholly to movements in the translation reserve.
Condensed consolidated cash flow statement
Six months ended 30 Year ended
June 31 December
------ ------------------------------ -------------
2021
2022 2021 (Audited)
(Unaudited) (Unaudited)
Notes GBPm GBPm GBPm
-------------------------------------- ------ -------------- -------------- -------------
Cash generated from operations 11 185.4 137.8 354.5
Income taxes (paid)/refunded (9.0) 8.0 12.4
Interest paid (33.0) (30.9) (60.5)
Interest received 0.6 0.2 0.1
-------------------------------------- ------ -------------- -------------- -------------
Net cash from operating activities,
made up of: 144.0 115.1 306.5
-------------------------------------- ------ -------------- -------------- -------------
Net cash from continuing operating
activities 144.0 133.3 322.9
-------------------------------------- ------ -------------- -------------- -------------
Net cash from discontinued operating
activities - (18.2) (16.4)
-------------------------------------- ------ -------------- -------------- -------------
Cash flows from investing activities
Purchases of property, plant
and equipment (78.4) (60.3) (191.0)
Purchases of intangible assets (4.4) (3.0) (18.7)
Acquisition of subsidiaries
net of cash acquired - (203.5) (203.5)
Proceeds on disposal of assets - 0.1 0.7
Proceeds on disposal of subsidiary
net of cash disposed and costs
of disposal - 185.5 183.7
-------------
Net cash from investing activities,
made up of(1) : (82.8) (81.2) ( 228.8)
-------------------------------------- ------ -------------- -------------- -------------
Net cash from continuing investing
activities (82.8) (266.7) (412.5)
-------------------------------------- ------ -------------- -------------- -------------
Net cash from discontinued investing
activities - 185.5 183.7
-------------------------------------- ------ -------------- -------------- -------------
Cash flows from financing activities
Equity dividends paid 8 (45.2) (41.0) (70.9)
Acquisition of additional shares
from non-controlling interests - - (21.5)
Proceeds from issue of share
capital 0.9 1.3 2.4
Investment from non-controlling
interests 1.5 3.4 6.5
Repayment of other borrowings 9 (41.4) (5.8) (256.3)
New borrowings drawn down 9 - 130.4 302.6
Principal repayment of lease
liabilities (8.5) (6.1) (13.2)
Net cash generated from financing
activities, made up of: (92.7) 82.2 (50.4)
-------------------------------------- ------ -------------- -------------- -------------
Net cash from continuing financing
activities (92.7) 82.2 (50.4)
-------------------------------------- ------ -------------- -------------- -------------
Net cash from discontinued financing
activities - - -
-------------------------------------- ------ -------------- -------------- -------------
Net (decrease)/increase in
cash and cash equivalents (31.5) 116.1 2 7.3
Cash and cash equivalents at
beginning of the period 317.4 289.8 289.8
Effect of changes in foreign
exchange rates 2.5 (0.2) 0.3
-------------------------------------- ------ -------------- -------------- -------------
Cash and cash equivalents at
end of the period 288.4 405.7 317.4
-------------------------------------- ------ -------------- -------------- -------------
(1) The split of net cash from investing activities for the six
months ended 30 June 2021 has been re-presented to show the
GBP185.5 million received on disposal of the CCGT assets within net
cash from discontinued investing activities, previously presented
within net cash from continuing investing activities.
Notes to the Condensed consolidated interim financial
statements
1. General information
These notes provide additional information about the disclosures
within the Condensed consolidated interim financial statements.
Further information can be found in the Group's 2021 Annual report
and accounts on pages 188-275.
Drax Group plc (the Company) is incorporated in England and
Wales under the Companies Act. The Company and its subsidiaries
(collectively, the Group) principally operate in the electricity
market within the UK, and the sustainable compressed wood pellet
market globally. The address of the Company's registered office and
principal establishment is Drax Power Station, Selby, North
Yorkshire, YO8 8PH, United Kingdom.
2. Segmental reporting
The Group is organised into three businesses, with a dedicated
management team for each, and a central corporate office providing
certain specialist and shared services. The Board reviews the
performance of each of these businesses separately, and each
represents a reportable segment:
Pellet Production : production of sustainable compressed wood
pellets at our processing facilities in North America and their
subsequent sale;
Generation : power generation activities in the UK; and
Customers : supply of electricity and gas to business customers
in the UK.
Operating costs are allocated to segments to the extent they are
directly attributable to the activities of that segment. Corporate
office costs are included within Innovation, capital projects and
other costs.
When defining gross profit within the 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 the fibre, fuel and drying
costs, in addition to direct freight and port costs, or third-party
pellet purchases. In respect of Generation, this reflects the
direct costs of the commodities to generate the power and the
relevant grid connection costs that arise. In respect of Customers,
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 Condensed
consolidated income statement).
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, and
thus drives higher prices and dispatch. Conversely, demand is
typically lower in the summer months (April to September), when
prices are lower.
This trend is experienced by all of the UK-based businesses, as
they operate within the UK electricity and gas markets and is most
notable within the Generation business due to its scale and the
flexible operation of generation plant when prices are lower in the
summer.
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 as a result of 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 for the six months ended 30 June 2022. The
financial information in the tables below is comprised solely of
results from continuing operations. There were no amounts
attributable to discontinued operations in the six months ended 30
June 2022. Total profit before tax from discontinued operations in
the six months ended 30 June 2021 was GBP32.7 million and was
GBP25.8 million for the year ended 31 December 2021. These amounts
were attributable entirely to the Generation segment. A
reconciliation of Adjusted EBITDA from continuing and discontinued
operations by reportable segment is contained within note 6.
Six months ended 30 June 2022 (Unaudited)
------------------------------------------------------------------------------------------------------------
Innovation, Exceptional
capital items and
Pellet projects Intra-group Adjusted certain Total
Production Generation Customers and other eliminations Results remeasure-ments Results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ----------------- ----------
Revenue
External
sales 157.9 1,795.1 1,668.5 - - 3,621.5 (64.4) 3,557.1
Inter --
segment sales 199.6 1,337.4 - - (1,537.0) - - -
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ----------------- ----------
Total revenue 357.5 3,132.5 1,668.5 - (1,537.0) 3,621.5 (64.4) 3,557.1
Cost of sales (241.8) (2,846.7) (1,578.1) - 1,531.9 (3,134.7) 194.0 (2,940.7)
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ----------------- ----------
Segment
gross profit 115.7 285.8 90.4 - (5.1) 486.8 129.6 616.4
Operating
and
administrative
expenses (70.6) (81.1) (40.2) (43.8) - (235.7) (1.6) (237.3)
Impairment
losses on
financial
assets - - (26.4) - - (26.4) - (26.4)
Depreciation
and
amortisation (59.4) (47.1) (12.4) (1.7) - (120.6) - (120.6)
Impairment
of non-current
assets - - - - - - (24.9) (24.9)
Losses on
disposal
of assets (0.3) (0.7) - - - (1.0) - (1.0)
Income from
associates 0.8 - - - - 0.8 - 0.8
Operating
(loss)/profit (13.8) 156.9 11.4 (45.5) (5.1) 103.9 103.1 207.0
Foreign
exchange
(losses)/gains (1.5) 1.0 (0.2) 29.1 - 28.4 - 28.4
Net interest
and similar
charges (12.1) (1.8) (1.9) (19.5) - (35.3) (0.2) (35.5)
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ----------------- ----------
(Loss)/profit
before tax (27.4) 156.1 9.3 (35.9) (5.1) 97.0 102.9 199.9
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ----------------- ----------
Six months ended 30 June 2021 (Unaudited)(1)
-----------------------------------------------------------------------------------------------------------
Innovation, Exceptional
capital items and
Pellet projects Intra-group Adjusted certain Total
Production Generation Customers and other eliminations Results remeasure-ments Results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ---------------- ----------
Revenue
External
sales 41.3 1,058.8 1,077.5 - - 2,177.6 (3.5) 2,174.1
Inter --
segment sales 143.9 660.1 - - (804.0) - - -
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ---------------- ----------
Total revenue 185.2 1,718.9 1,077.5 - (804.0) 2,177.6 (3.5) 2,174.1
Cost of sales (107.3) (1,466.3) (1,033.5) - 800.1 (1,807.0) 23.4 (1,783.6)
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ---------------- ----------
Segment
gross profit 77.9 252.6 44.0 - (3.9) 370.6 19.9 390.5
Operating
and
administrative
expenses (38.0) (88.1) (40.7) (30.8) - (197.6) (11.9) (209.5)
Impairment
losses on
financial
assets - - (8.0) - - (8.0) - (8.0)
Depreciation
and
amortisation (23.0) (49.4) (15.2) (1.3) - (88.9) - (88.9)
Gains/(losses)
on disposal
of assets 0.3 (0.2) (0.1) - - - - -
Income from
associates 0.1 - - - - 0.1 - 0.1
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ---------------- ----------
Operating
profit/(loss) 17.3 114.9 (20.0) (32.1) (3.9) 76.2 8.0 84.2
Foreign
exchange
gains/(losses) 0.8 2.7 - (1.6) - 1.9 (0.2) 1.7
Net interest
and similar
charges (8.5) (2.0) (2.9) (20.7) - (34.1) - (34.1)
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ---------------- ----------
Profit/(loss)
before tax 9.6 115.6 (22.9) (54.4) (3.9) 44.0 7.8 51.8
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ---------------- ----------
(1) The segmental results for the six months ended 30 June 2021
have been re-presented to reflect the presentation adopted in the
2021 Group Annual report and accounts.
Year ended 31 December 2021 (Audited)
-----------------------------------------------------------------------------------------------------------
Innovation, Exceptional
capital items and
Pellet projects Intra-group Adjusted certain Total
Production Generation Customers and other eliminations Results remeasure-ments Results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ---------------- ----------
Revenue
2,651. 2,359.
External sales 163.1 2 6 - - 5,173.9 (85.9) 5,088.0
Inter --
segment (2,317.
sales 286.7 2,031.1 - - 8) - - -
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ---------------- ----------
2,359. (2,317.
Total revenue 449.8 4,682.3 6 - 8) 5,173.9 (85.9) 5,088.0
Cost of sales (267.0) (4,131.9) (2,255.9) - 2,323.7 (4,331.1) 134.3 (4,196.8)
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ---------------- ----------
Segment gross
profit 182. 8 550.4 103.7 - 5.9 842. 8 48.4 891.2
Operating and
administrative
expenses (96.9) (198.9) (81.7) (70.9) - (448.4) (21.5) (469.9)
Impairment
losses on
financial
assets - - (16.3) - - (16.3) - (16.3)
Depreciation
and
amortisation (61.4) (103.4) (30.5) (3.6) - (198.9) (0.5) (199.4)
Losses on
disposal
of assets (1.0) (7.8) (0.4) (0.2) - (9.4) - (9.4)
Income from
associates 0.3 - - - - 0.3 - 0.3
Operating
profit/(loss) 23.8 240.3 (25.2) (74.7) 5.9 170. 1 26.4 196.5
Foreign
exchange ( 0.8 ( 0.1
(losses)/gains ) 2.0 ) (0.2) - 0.9 ( 5.1) ( 4.2)
Net interest
and similar ( 19.6 ( 5.6
charges ) (4.4) ) (40.9) - (70.5) ( 0.3) ( 70.8)
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ---------------- ----------
Profit/(loss)
before tax 3.4 237.9 (30.9) (115.8) 5.9 100. 5 21.0 121.5
---------------- ----------- ----------- ---------- ------------ ------------- ---------- ---------------- ----------
The accounting policies applied for the purpose of measuring the
segments' profits or losses, assets and liabilities are the same as
those used in measuring the corresponding amounts in the Group's
2021 Annual report and accounts except for the change in accounting
policy for SaaS costs (see Change in accounting policies section
for further details).
Capital expenditure by segment
Assets and working capital are monitored on a consolidated
basis; however, spend on capital projects is monitored by
segment.
30 June 2022 30 June 2021 31 December 2021
Unaudited Unaudited Audited
Capital Capital Capital
Capital additions Capital additions Capital additions
additions to to property, additions to to property, additions to to property,
intangible plant and intangible plant and intangible plant and
assets equipment assets equipment assets equipment
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------- ------------- -------------- -------------- ------------- -------------
Pellet Production - 28.8 - 39.4 8.2 108.6
Generation 0.8 26.3 1.1 21.7 3.4 103.2
Customers 1.8 - 4.6 0.1 8.9 0.1
Innovation, capital
projects and other 1.3 1.2 - 4.5 1.8 3.6
-------------------------- ------------- ------------- -------------- -------------- ------------- -------------
Total 3.9 56.3 5.7 65.7 22.3 215.5
-------------------------- ------------- ------------- -------------- -------------- ------------- -------------
Geographical analysis of revenue and non-current assets
Revenue from continuing operations (based on Non-current assets(1)
location of customer) (based on asset's location)
GBPm GBPm
30 June 30 June 31 December 30 June 30 June 31 December
2022 2021 2021 2022 2021 2021
Unaudited Unaudited Audited Unaudited Unaudited Audited
GBPm GBPm GBPm GBPm GBPm GBPm
-------------- --------------- --------------- ------------------ --------------- ------------- ----------------
North America 5.6 2.1 11.5 1,059.1 933.4 987.4
Europe 18.0 6.7 39.1 - - -
Asia 94.6 29.6 93.0 - - -
UK 3,438.9 2,135.7 4,944.4 1,988.0 2,044.9 2,053.5
-------------- --------------- --------------- ------------------ --------------- ------------- ----------------
Total 3,557.1 2,174.1 5,088.0 3,047.1 2,978.3 3,040.9
-------------- --------------- --------------- ------------------ --------------- ------------- ----------------
(1) Non-current assets comprise goodwill, intangible assets,
PP&E, right-of-use assets and investments.
3. Revenue
Revenue represents amounts receivable for goods or services
provided to the customer in the normal course of business, net of
trade discounts, VAT and other sales-related taxes, and excluding
transactions between Group companies.
During the period, the Group made sales (and related purchases)
of Renewable Obligation Certificates (ROCs) to help optimise the
Group's working capital position. External sales of Renewable
certificates below include GBP276.3 million of such sales (six
months ended 30 June 2021: GBP140.0 million), with a similar value
reflected in cost of sales.
As described in further detail on page 254 of the Group's 2021
Annual report and accounts, certain electricity sales in the
Generation segment are typically made under forward-dated contracts
with customers. Between inception and maturity these contracts meet
the definition of a derivative financial instrument and are
measured at fair value on the Group's balance sheet (see note 13).
Fair value gains and losses on power sales contracts that have not
matured are typically recognised in the hedge reserve. At maturity,
revenue is recognised in the Group's Adjusted Results at the price
agreed in the contract, reflecting the amount received for the
delivery of power.
For further details on the revenue streams listed below see
pages 191 and 192 of the Group's 2021 Annual report and
accounts.
The sources of revenue were as follows:
Six months ended 30 June 2022 (Unaudited)
---------------------------------------------
External Intra-group Total
GBPm GBPm GBPm
------------------------------------------ --------------- ---------------- ------------
Pellet Production
Pellet sales 153.1 199.5 352.6
Other income 4.8 0.1 4.9
------------------------------------------ --------------- ---------------- ------------
Total 157.9 199.6 357.5
Generation
Electricity sales 1,363.6 1,312.6 2,676.2
Renewable certificate sales 370.7 24.8 395.5
CfD payment (8.3) - (8.3)
Ancillary services 32.6 - 32.6
Other income 36.5 - 36.5
------------------------------------------ --------------- ---------------- ------------
Total 1,795.1 1,337.4 3,132.5
Customers
Electricity and gas sales 1,668.5 - 1,668.5
Total 1,668.5 - 1,668.5
Elimination of intra-group sales - (1,537.0) (1,537.0)
------------------------------------------ --------------- ---------------- ------------
Total adjusted consolidated revenue 3,621.5 - 3,621.5
------------------------------------------ --------------- ---------------- ------------
Certain remeasurements (64.4) - (64.4)
------------------------------------------ --------------- ---------------- ------------
Total consolidated revenue 3,557.1 - 3,557.1
------------------------------------------ --------------- ---------------- ------------
Six months ended 30 June 2021 (Unaudited)
---------------------------------------------
External Intra-group Total
GBPm GBPm GBPm
------------------------------------ ------------- ----------------- -----------
Pellet Production
Pellet sales 39.2 143.8 183.0
Other income 2.1 0.1 2.2
Total 41.3 143.9 185.2
Generation
Electricity sales 643.2 660.0 1,303.2
Renewable certificate sales 190.6 0.1 190.7
CfD income 188.3 - 188.3
Ancillary services 21.3 - 21.3
Other income 15.4 - 15.4
------------------------------------ ------------- ----------------- -----------
Total 1,058.8 660.1 1,718.9
Customers
Electricity and gas sales 1,077.1 - 1,077.1
Other income 0.4 - 0.4
------------- ----------------- -----------
Total 1,077.5 - 1,077.5
Elimination of intra-group sales - (804.0) (804.0)
------------------------------------ ------------- ----------------- -----------
Total adjusted consolidated revenue 2,177.6 - 2,177.6
------------------------------------ ------------- ----------------- -----------
Certain remeasurements (3.5) - (3.5)
------------------------------------ ------------- ----------------- -----------
Total consolidated revenue 2,174.1 - 2,174.1
------------------------------------ ------------- ----------------- -----------
Year ended 31 December 2021 (Audited)
-----------------------------------------
External Intra-group Total
GBPm GBPm GBPm
------------------------------------ ----------- --------------- -----------
Pellet Production
Pellet sales 157.4 286.5 443.9
Other income 5.7 0.2 5.9
------------------------------------
Total 1 63.1 2 86.7 4 49.8
Generation
Electricity sales 1,790.2 1,688.5 3,478.7
Renewable certificate sales 538.6 342.6 881.2
CfD income 234.9 - 234.9
Ancillary services 50.6 - 50.6
Other income 36.9 - 36.9
------------------------------------
Total 2,651.2 2,031.1 4,682.3
Customers
Electricity and gas sales 2,358.9 - 2,358.9
Other income 0.7 - 0.7
------------------------------------
Total 2,359.6 - 2,359.6
Elimination of intra-group sales - (2,317.8) (2,317.8)
------------------------------------ ----------- --------------- -----------
Total adjusted consolidated revenue 5,173.9 - 5,173.9
------------------------------------ ----------- --------------- -----------
Certain remeasurements (85.9) - (85.9)
------------------------------------ ----------- --------------- -----------
Total consolidated revenue 5,088.0 - 5,088.0
------------------------------------ ----------- --------------- -----------
4. Net finance costs
Finance costs reflect expenses incurred in managing the debt
structure (such as interest payable on bonds) as well as foreign
exchange gains and losses, the unwinding of discount on provisions
for reinstatement of the Group's sites at the end of their useful
lives, interest charged on the Group's defined benefit pension
scheme obligations and lease liabilities. These expenses are offset
by interest income on the Group's defined benefit pension scheme
plan assets and interest income that the Group generates through
use of short-term cash surpluses.
Year ended
Six months ended 30 June 31 December
----------------------------- ------------
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
------------------------------------------------------------------------ ----------- ----------- -----------------
Interest payable and similar charges:
Interest payable on borrowings (29.5) (29.5) (59.2)
Interest on lease liabilities (3.2) (1.8) (4.9)
Unwinding of discount on provisions (0.4) (0.3) (0.6)
Amortisation of deferred finance costs (note 9) (3.3) (2.9) (5.7)
Other financing charges - - (0.5)
------------------------------------------------------------------------ ----------- -----------
Total interest payable and similar charges included in Adjusted Results (36.4) (34.5) (70.9)
------------------------------------------------------------------------ ----------- ----------- -----------------
Interest receivable:
Interest income on bank deposits 0.6 0.2 0.1
Net finance credit in respect of defined benefit pension scheme 0.5 0.2 0.3
------------------------------------------------------------------------ ----------- ----------- -----------------
Total interest receivable included in Adjusted Results 1.1 0.4 0.4
------------------------------------------------------------------------ ----------- ----------- -----------------
Foreign exchange gains included in Adjusted Results 28.4 1.9 0.9
------------------------------------------------------------------------ ----------- ----------- -----------------
Total net interest charge included in Adjusted Results (6.9) (32.2) (69.6)
------------------------------------------------------------------------ ----------- ----------- -----------------
Certain remeasurements on financing derivatives (0.2) (0.2) (5.4)
------------------------------------------------------------------------ ----------- ----------- -----------------
Total net finance costs (7.1) (32.4) (75.0)
------------------------------------------------------------------------ ----------- ----------- -----------------
The Group has a number of intercompany loans denominated in the
functional currency of certain foreign subsidiaries, that are owed
to a sterling functional currency entity. Due to the weakening of
sterling during the six months ended 30 June 2022, this has
resulted in a foreign exchange gain of GBP28.5 million ( six months
ended 30 June 2021: GBP1.5 million loss) on the retranslation of
intercompany loans in the income statement of the sterling
functional currency entity. The foreign exchange loss ( six months
ended 30 June 2021: gain) on translating the foreign subsidiaries'
intercompany loans into the Group's sterling presentational
currency is recognised within the translation reserve. As such on
consolidation, a foreign exchange gain ( six months ended 30 June
2021: loss) arises in the Condensed consolidated income statement
and is part of the foreign exchange gains included in Adjusted
Results amount in the table above .
5. Taxation
The tax charge for the period includes both current and deferred
tax. The tax charge is based upon the expected tax rate for the
full year, which is applied to taxable profits for the period,
together with any charge or credit in respect of prior years and
the tax effect of any exceptional items and certain remeasurements
(see note 6).
Current tax, including UK corporation tax, Canadian corporate
income tax, and US corporate tax, is calculated as the income taxes
payable on taxable profits, or recoverable in respect of tax
losses, for the period. Deferred tax is calculated as the income
taxes payable or recoverable in future accounting periods in
respect of temporary differences which may be taxable or allowed as
deductible. Temporary differences themselves represent the
difference between the carrying amount of an asset or liability in
the financial statements and the relevant tax base thereon.
Six months ended 30 Year ended
June 31 December
------------------------------ -------------
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
------------------------------------------------ -------------- -------------- -------------
Tax charge on continuing operations
comprises:
Current tax
* Current period charge 10.2 0.2 7.7
* Adjustments in respect of prior periods - (2.8) 1.4
Deferred tax
* Before impact of tax rate changes 33.7 12.9 7.3
* Adjustments in respect of prior periods 0.3 0.1 1.0
* Effect of changes in tax rate 7.8 47.7 49.0
Tax charge 52.0 58.1 66.4
------------------------------------------------ -------------- -------------- -------------
The expected tax rate for the full year, before the impact of
changes in tax rates, is the same as the standard corporation tax
rate applicable in the UK of 19%, reflecting that the majority of
the anticipated full year profit is UK-based. The expected full
year rate is higher than the prior year rate of 12% due to the
increase in taxable profits, whilst continuing to include the
benefit of deductions for patent box and the 'super deduction' for
qualifying plant and machinery expenditure.
On 24 May 2021, the Finance Bill 2021, which contains
legislation to increase the main rate of UK corporation tax from
19% to 25% with effect from 1 April 2023, concluded its third
reading in the House of Commons and was thereby substantially
enacted for IFRS purposes on that date. The Group has remeasured
the relevant deferred tax assets and liabilities to reflect this
change where these are expected to be realised or settled on or
after 1 April 2023. The impact of this rate increase for the six
months ended 30 June 2022 is a GBP7.8 million deferred tax charge
through the Condensed consolidated income statement (six months
ended 30 June 2021: GBP47.7 million).
6. Alternative performance measures (APMs)
The APMs Glossary table to these Condensed consolidated interim
financial statements provides details on all APMs used, the APM's
closest IFRS equivalent, the reason why each APM is used by the
Group and a definition of how the APM is calculated.
The Group presents Adjusted Results in the Condensed
consolidated income statement. The Directors believe this approach
is useful and provides a clear and consistent view of underlying
trading performance. Certain remeasurements and exceptional items
are excluded from Adjusted Results and presented in a separate
column. The Group believes that this presentation provides useful
information about the financial performance of the business and is
consistent with the way executive management and the Board assess
the performance of the business.
The Group has a policy and framework for the determination of
transactions as exceptional. All transactions presented as
exceptional are also approved by the Audit Committee. See the Audit
Committee Report on pages 118-129 of the Group's 2021 Annual report
and accounts for further details. In these Condensed consolidated
interim financial statements, the following transactions have been
designated as exceptional items and presented separately:
-- Impairment charges incurred on the application of a new
accounting policy for SaaS costs, consistent with the IFRS IC
agenda decision, and on costs associated with the Customers'
billing system. See the Financial Review for further details (2022,
All segments).
-- Costs associated with the acquisition (2021) and integration
(2022 and 2021) of Pinnacle (Pellet Production).
-- Costs relating to the restructuring of the Customers business (2022 and 2021, Customers).
-- Operating expenditure which was incurred as a direct result
of the decision to cease commercial coal generation (2021,
Generation).
-- Impact of UK tax rate change on deferred tax balances (2022
and 2021, Generation and Customers).
Certain remeasurements comprise gains and 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 the delivery
of commodity contracts in future periods, or ii) are realised in
relation to the delivery of commodity contracts in the current
period. The effect of excluding certain remeasurements from
Adjusted Results is to reflect commodity sales and purchases at
contracted prices - i.e. at the all-in-hedged amount paid or
received in respect of the delivery of the commodity in question,
to more clearly present the trading performance of the Group in
Adjusted Results.
Volatility in financial and commodity markets has continued in
2022, in part due to the conflict in Ukraine. This has resulted in
significant movements in the remeasurement gains and losses on
certain derivative financial instruments which do not qualify for
hedge accounting, as shown in the table below, principally relating
to gas, certain foreign currency contracts, inflation and oil.
Further detail on the Group's derivative financial instruments is
provided in notes 12 and 13.
Six months ended 30 Year ended
June 31 December
------------------------------ -------------
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
----------------------------------------------- -------------- -------------- -------------
Exceptional Items:
Inventory provision as a result of coal
closure - - (0.3)
Acquisition costs - (7.7) (7.9)
Restructuring costs (0.5) (2.2) (5.2)
Integration costs (1.1) (2.0) (4.1)
Impairment of non-current assets (24.9) - -
Coal closure costs - - (4.8)
Exceptional items included in operating
profit (26.5) (11.9) (22.3)
Tax on exceptional items 5.2 (2.1) 2.5
Impact of tax rate change (7.8) (47.7) (48.6)
Exceptional items after taxation (29.1) (61.7) (68.4)
Certain remeasurements:
Net certain remeasurements included in
revenue (64.4) (3.5) (85.9)
Net certain remeasurements included in
cost of sales 194.0 23.4 134.6
Certain remeasurements included in operating
profit 129.6 19.9 48.7
Net certain remeasurements included in
interest payable and similar charges (0.2) - (0.3)
Net certain remeasurements included in
foreign exchange losses - (0.2) (5.1)
Certain remeasurements included in profit
before tax 129.4 19.7 43.3
Taxation on certain remeasurements (31.4) (3.4) (8.2)
Certain remeasurements after tax 98.0 16.3 35.1
Reconciliation:
Adjusted profit after tax from continuing
operations 79.0 39.1 88.4
Exceptional items after tax (29.1) (61.7) (68.4)
Certain remeasurements after tax 98.0 16.3 35.1
Total profit/(loss) after tax from continuing
operations 147.9 (6.3) 55.1
----------------------------------------------- -------------- -------------- -------------
Six months ended 30 June
------------------------ ---------------------------------------------------------------------
2022 2021
(Unaudited) (Unaudited)
------------------------ ---------------------------------- ---------------------------------
Adjusted
Adjusted profit Total (loss)/
Adjusted profit Total profit Adjusted after profit
EBITDA after tax after tax EBITDA tax after tax
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- ---------- ------------ -------- -------- -------------
Continuing operations 224.9 79.0 147.9 165.0 39.1 (6.3)
Discontinued operations - - - 20.7 18.7 30.7
------------------------ -------- ---------- ------------ -------- -------- -------------
Total 224.9 79.0 147.9 185.7 57.8 24.4
------------------------ -------- ---------- ------------ -------- -------- -------------
Year ended 31 December 2021
------------------------
(Audited)
------------------------ -------------------------------------
Adjusted
Adjusted profit after Total profit
EBITDA tax after tax
GBPm GBPm GBPm
------------------------ -------- ------------- ------------
Continuing operations 377.9 88.4 55.1
Discontinued operations 20.3 16.7 24.1
--------------------------- -------- ------------- ------------
Total 398.2 105.1 79.2
--------------------------- -------- ------------- ------------
For each item designated as exceptional or as a certain
remeasurement, the tables below summarise the impact of the item on
the Adjusted Results, basic EPS and cash flows. All exceptional
items and certain remeasurement amounts relate to continuing
operations.
Six months ended 30 June 2022 (Unaudited)
--------------------- ---------------------------------------------------------------------------------------------
Cash
Profit P rofit Basic flow from
Gross Operating before Tax for the earnings operating
Revenue profit profit tax charge period per share activities
GBPm GBPm GBPm GBPm GBPm GBPm Pence GBPm
--------------------- -------- --------- ------------ -------- --------- --------- ----------- -------------
Total Results IFRS
measure 3,557.1 616.4 207.0 199.9 (52.0) 147.9 37.2 144.0
--------------------- -------- --------- ------------ -------- --------- --------- ----------- -------------
Certain
remeasurements:
Net fair value
remeasurement
on derivative
contracts 64.4 (129.6) (129.6) (129.4) 31.4 (98.0) (24.5) -
Exceptional items:
Impairment of
non-current
assets - - 24.9 24.9 (5.0) 19.9 5.0 -
Restructuring costs - - 0.5 0.5 (0.1) 0.4 0.1 0.4
Integration costs - - 1.1 1.1 (0.1) 1.0 0.2 1.0
Impact of tax rate
change - - - - 7.8 7.8 2.0 -
--------------------- -------- --------- ------------ -------- --------- --------- ----------- -------------
Total 64.4 (129.6) (103.1) (102.9) 34.0 (68.9) (17.2) 1.4
--------------------- -------- --------- ------------ -------- --------- --------- ----------- -------------
Adjusted totals 3,621.5 486.8 103.9 97.0 (18.0) 79.0 20.0 145.4
--------------------- -------- --------- ------------ -------- --------- --------- ----------- -------------
Six months ended 30 June 2021 (Unaudited)
-------------------- ----------------------------------------------------------------------------------------------
Cash
(Loss)/ Basic flow
Profit profit (loss)/ from
Gross Operating before for the earnings operating
Revenue profit profit tax Tax charge period per share activities
GBPm GBPm GBPm GBPm GBPm GBPm Pence GBPm
-------------------- -------- --------- ------------ -------- ----------- --------- ----------- ------------
Total Results IFRS
measure 2,174.1 390.5 84.2 51.8 (58.1) (6.3) (1.5) 115.1
-------------------- -------- --------- ------------ -------- ----------- --------- ----------- ------------
Certain
remeasurements:
Net fair value
remeasurement
on derivative
contracts 3.5 (19.9) (19.9) (19.7) 3.4 (16.3) (4.1) -
Exceptional items:
Acquisition costs - - 7.7 7.7 1.2 8.9 2.2 8.9
Restructuring costs - - 2.2 2.2 0.5 2.7 0.7 0.7
Integration costs - - 2.0 2.0 0.4 2.4 0.6 2.4
Impact of tax rate
change - - - - 47.7 47.7 12.0 -
-------------------- -------- --------- ------------ -------- ----------- --------- ----------- ------------
Total 3.5 (19.9) (8.0) (7.8) 53.2 45.4 11.4 12.0
-------------------- -------- --------- ------------ -------- ----------- --------- ----------- ------------
Adjusted totals 2,177.6 370.6 76.2 44.0 (4.9) 39.1 9.9 127.1
-------------------- -------- --------- ------------ -------- ----------- --------- ----------- ------------
Year ended 31 December 2021 (Audited)
-------------------- ----------------------------------------------------------------------------------------------
Profit Cash flow
Profit for Basic from operating
Gross Operating before the earnings activities
Revenue profit profit tax Tax charge period per share GBPm
GBPm GBPm GBPm GBPm GBPm GBPm Pence
-------------------- -------- -------- ---------- -------- ----------- -------- ----------- ----------------
Total Results IFRS
measure 5,088.0 891.2 196.5 121.5 (66.4) 55.1 13.9 306.5
-------------------- -------- -------- ---------- -------- ----------- -------- ----------- ----------------
Certain
remeasurements:
Net fair value
remeasurement
on derivative
contracts 85.9 (48.7) (48.7) (43.3) 8.2 (35.1) (8.8) -
Exceptional items:
Inventory provision
as a result of
coal
closure - 0.3 0.3 0.3 (0.1) 0.2 0.1 -
Acquisition costs - - 7.9 7.9 - 7.9 1.8 7.9
Restructuring costs - - 5.2 5.2 (0.8) 4.4 1.1 4.4
Integration costs - - 4.1 4.1 (0.8) 3.3 0.8 3.3
Operating
expenditure
as a result of
coal
closure - - 4.8 4.8 (0.8) 4.0 1.2 -
Impact of tax rate
change - - - - 48.6 48.6 12.2 -
Total 85.9 (48.4) (26.4) (21.0) 54.3 33.3 8.4 15.6
-------------------- -------- -------- ---------- -------- ----------- -------- ----------- ----------------
Adjusted totals 5,173.9 842.8 170.1 100.5 (12.1) 88.4 22.3 322.1
-------------------- -------- -------- ---------- -------- ----------- -------- ----------- ----------------
Six months ended 30 June
2022 (Unaudited)
-----------------------------------------
Attributable to
Owners
of the
Parent Non-controlling
Company interests Total
GBPm GBPm GBPm
-------------------------------------------------- --------- ---------------- ------------
Adjusted operating profit/(loss) 104.9 (1.0) 103.9
-------------------------------------------------- --------- ---------------- ------------
Depreciation and amortisation 119.8 0.8 120.6
Loss on disposal of assets 1.0 - 1.0
Income from associates (0.8) - (0.8)
-------------------------------------------------- --------- ---------------- ------------
Adjusted EBITDA from continuing operations 224.9 (0.2) 224.7
Adjusted EBITDA from discontinued operations - - -
-------------------------------------------------- --------- ---------------- ------------
Adjusted EBITDA from continuing and discontinued
operations 224.9 (0.2) 224.7
-------------------------------------------------- --------- ---------------- ------------
Six months ended 30 June
2021 (Unaudited)
-----------------------------------------
Attributable to
Owners
of the
Parent Non-controlling
Company interests Total
GBPm GBPm GBPm
-------------------------------------------------- --------- ---------------- ------------
Adjusted operating profit/(loss) 76.6 (0.4) 76.2
-------------------------------------------------- --------- ---------------- ------------
Depreciation and amortisation 88.5 0.4 88.9
Income from associates (0.1) - (0.1)
-------------------------------------------------- --------- ---------------- ------------
Adjusted EBITDA from continuing operations 165.0 - 165.0
Adjusted EBITDA from discontinued operations 20.7 - 20.7
-------------------------------------------------- --------- ---------------- ------------
Adjusted EBITDA from continuing and discontinued
operations 185.7 - 185.7
-------------------------------------------------- --------- ---------------- ------------
Year ended 31 December
2021 (Audited)
-----------------------------------------
Attributable to
Owners
of the
Parent Non-controlling
Company interests Total
GBPm GBPm GBPm
-------------------------------------------------- --------- ---------------- ------------
Adjusted operating profit/(loss) 170.6 (0.5) 170.1
-------------------------------------------------- --------- ---------------- ------------
Depreciation and amortisation 198.3 0.6 198.9
Loss on disposal of assets 9.3 0.1 9.4
Income from associates (0.3) - (0.3)
-------------------------------------------------- --------- ---------------- ------------
Adjusted EBITDA from continuing operations 377.9 0.2 378.1
Adjusted EBITDA from discontinued operations 20.3 - 20.3
-------------------------------------------------- --------- ---------------- ------------
Adjusted EBITDA from continuing and discontinued
operations 398.2 0.2 398.4
-------------------------------------------------- --------- ---------------- ------------
Six months ended 30 June 2022 (Unaudited)
------------------------- ------------------------------------------------------------------------
Innovation,
capital
Pellet projects Intra-group Adjusted
Production Generation Customers and other eliminations Results
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----------- ---------- --------- ----------- ------------- --------
Segment Adjusted EBITDA:
Continuing operations 45.3 204.7 23.8 (43.8) (5.1) 224.9
Discontinued operations - - - - - -
------------------------- ----------- ---------- --------- ----------- ------------- --------
Total 45.3 204.7 23.8 (43.8) (5.1) 224.9
------------------------- ----------- ---------- --------- ----------- ------------- --------
Six months ended 30 June 2021 (Unaudited)
------------------------- ------------------------------------------------------------------------
Innovation,
capital
Pellet projects Intra-group Adjusted
Production Generation Customers and other eliminations Results
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----------- ---------- --------- ----------- ------------- --------
Segment Adjusted EBITDA:
Continuing operations 39.9 164.5 (4.7) (30.8) (3.9) 165.0
Discontinued operations - 20.7 - - - 20.7
------------------------- ----------- ---------- --------- ----------- ------------- --------
Total 39.9 185.2 (4.7) (30.8) (3.9) 185.7
------------------------- ----------- ---------- --------- ----------- ------------- --------
Year ended 31 December 2021 (Audited)
------------------------- ------------------------------------------------------------------------
Innovation,
capital
Pellet projects Intra-group Adjusted
Production Generation Customers and other eliminations Results
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----------- ---------- --------- ----------- ------------- --------
Segment Adjusted EBITDA:
Continuing operations 85.7 351.5 5.7 (70.9) 5.9 377.9
Discontinued operations - 20.3 - - - 20.3
------------------------- ----------- ---------- --------- ----------- ------------- --------
Total 85.7 371.8 5.7 (70.9) 5.9 398.2
------------------------- ----------- ---------- --------- ----------- ------------- --------
Cash and committed facilities
The table below reconciles the Group's available cash and
committed facilities:
Six months ended 30 Year ended
June 31 December
------------------------------ -------------
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
------------------------------------------- -------------- -------------- -------------
Cash and cash equivalents 288.4 405.7 317.4
Revolving credit facility available but
not utilised(1) 250.1 245.1 231.4
2020 Private placement facility available
but not utilised - 15.3 -
Total cash and committed facilities 538.5 666.1 548.8
------------------------------------------- -------------- -------------- -------------
(1) The Group's available balance on the RCF facility (includes
GBP300 million and C$10 million RCF, see note 9) is reduced by
letters of credit drawn under the RCF. As at 30 June 2022 GBP56.3
million letters of credit were drawn (as at 31 December 2021:
GBP74.4 million).
Adjusted EPS and Net Debt are other key APMs used by the Group.
See notes 7 and 10 respectively for further details on these APMs.
Further commentary on Total cash and committed facilities is
contained within the CFO financial review.
7. Earnings per share
Earnings per share (EPS) represents the amount of earnings
(post-tax profits) attributable to each ordinary share or dilutive
potential ordinary share that the Group has in issue. Basic EPS is
calculated by dividing the Group's earnings attributable to the
owners of the Parent Company (profit after tax in accordance with
IFRS) by the weighted average number of ordinary shares in issue
during the period. Diluted EPS demonstrates the impact upon Basic
EPS if all outstanding share options, that are expected to vest on
their future maturity dates, were exercised and treated as ordinary
shares as at the balance sheet date.
Shares purchased under the Group's share buy-back programme are
not included in the weighted average calculation of shares. For the
purpose of calculating Diluted EPS, the weighted average
calculation of shares excludes any share options that would have an
anti-dilutive impact.
Six months ended Year ended
30 June 31 December
------------------------------ -------------
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
------------------------------------------------- -------------- -------------- -------------
Number of shares:
Weighted average number of ordinary shares
for the purposes of Basic earnings per share
(millions) 400.0 397.9 398.4
Effect of dilutive potential ordinary shares
under share plans (millions) 14.8 9.4 14.2
------------------------------------------------- -------------- -------------- -------------
Weighted average number of ordinary shares
for the purposes of Diluted earnings per share
(millions) 414.8 407.3 412.6
Total earnings per share
Earnings per share - Basic (Pence) 37.2 6.2 20.0
------------------------------------------------- -------------- -------------- -------------
Earnings per share - Diluted (Pence) 35.9 6.0 19.3
------------------------------------------------- -------------- -------------- -------------
The tables below detail the earnings attributable to owners of
the Parent Company:
Six months ended 30 June 2022 (Unaudited)
---------- ------------------------------- ---------------------------------------------------------------------
Earnings per share from Earnings per share from
Earnings per share continuing operations discontinued operations
------------------------------- --------------------------------- ----------------------------------
Profit Profit
after after Profit
tax(1) Basic Diluted tax(1) Basic Diluted after tax Basic Diluted
GBPm (Pence) (Pence) GBPm (Pence) (Pence) GBPm (Pence) (Pence)
---------- --------- --------- --------- --------- ---------- ---------- --------- ---------- -----------
Total
Results 148.9 37.2 35.9 148.9 37.2 35.9 - - -
Adjusted
Results 80.0 20.0 19.3 80.0 20.0 19.3 - - -
---------- --------- --------- --------- --------- ---------- ---------- --------- ---------- -----------
(1) Excludes GBP(1.0) (million attributable to non-controlling
interests.)
Six months ended 30 June 2021 (Unaudited)
--------- ----------------------------------------------------------------------------------------------------
(Loss)/Earnings per share Earnings per share from
Earnings per share from continuing operations discontinued operations
--------------------------------- --------------------------------- ------------------------------
Profit (Loss)/profit Profit
after tax(1) Basic Diluted after tax(1) Basic Diluted after tax Basic Diluted
GBPm (Pence) (Pence) GBPm (Pence) (Pence) GBPm (Pence) (Pence)
--------- ------------- -------- -------- ------------- -------- -------- ---------- -------- --------
Total
Results 24.6 6.2 6.0 (6.1) (1.5) (1.5) 30.7 7.7 7.5
Adjusted
Results 58.0 14.6 14.2 39.3 9.9 9.6 18.7 4.7 4.6
--------- ------------- -------- -------- ------------- -------- -------- ---------- -------- --------
(1) Excludes GBP(0.2) (million attributable to non-controlling
interests.)
Year ended 31 December 2021 (Audited)
--------- ----------------------------------------------------------------------------------------------------
Earnings per share from Earnings per share from
Earnings per share continuing operations discontinued operations
--------------------------------- -------------------------------- -------------------------------
Profit Profit after Profit
after tax(1) Basic Diluted tax(1) Basic Diluted after tax Basic Diluted
GBPm (Pence) (Pence) GBPm (Pence) (Pence) GBPm (Pence) (Pence)
--------- ------------- -------- -------- ------------ -------- -------- ----------- -------- --------
Total
Results 79.7 20.0 19.3 55.6 13.9 13.5 24.1 6.1 5.8
Adjusted
Results 105.6 26.5 25.6 88.9 22.3 21.5 16.7 4.2 4.1
--------- ------------- -------- -------- ------------ -------- -------- ----------- -------- --------
(1) Excludes GBP(0.5) (million attributable to non-controlling
interests.)
8. Dividends
Six months ended Year ended
30 June 31 December
------------------------------ -------------
Pence
per
share 2022 2021 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
----------------------------------------- ------- -------------- -------------- -------------
Amounts recognised as distributions
to equity holders in the period (based
on the number of shares in issue at
the record date):
Final dividend for the year ended 31
December 2021 paid 13 May 2022 11.3 45.2 - -
Interim dividend for the year ended
31 December 2021 paid 8 October 2021 7.5 - - 29.9
Final dividend for the year ended 31
December 2020 paid 14 May 2021 10.3 - 41.0 41.0
----------------------------------------- ------- -------------- -------------- -------------
45.2 41.0 70.9
----------------------------------------- ------- -------------- -------------- -------------
On 25 July 2022, the Board resolved to pay an interim dividend
of 8.4 pence per share (GBP34 million), representing 40% of the
expected full year dividend in line with our dividend policy. The
interim dividend will be paid on 7 October 2022 and the record date
for entitlement to the dividend will be on 26 August 2022.
Distributable profits
The capacity of the Group to make dividend payments is primarily
determined by the availability of retained distributable profits
and cash resources.
The Parent Company (Drax Group plc) has distributable reserves
at 30 June 2022 of GBP338.8 million. Sufficient reserves are
available across the Group to make future distributions in
accordance with the Group's dividend policy for the foreseeable
future.
The majority of the Group's distributable reserves are held in
holding and operating subsidiaries. Management actively monitors
the level of distributable reserves in each company in the Group,
ensuring adequate reserves are available for upcoming dividend
payments and that the Parent Company has access to these
reserves.
The immediate cash resources of the Group of GBP288.4 million
are comprised of cash and cash equivalents that are accessible on
demand. The recent history of operating cash generation is set out
in note 11. Most of these cash resources are held centrally within
the Group by Drax Corporate Limited for treasury management
purposes and are available for funding the working capital and
other requirements of the Group.
The Group's financing facilities (see note 9) place customary
conditions on the amount of dividend payments to be made in any
given year. The Group expects to be able to make dividend payments,
in line with its policy, within these conditions, for the
foreseeable future.
9. Borrowings
The Group's net borrowings at each period end were as
follows:
As at 30 June Year ended 31 December
---------------------------- ----------------------
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
----------------------
2.625% loan notes 2025 EUR250m(1) 212.8 211.4 207.2
6.625% loan notes 2025 $500m(2) 408.8 359.3 367.0
Index-linked loan GBP35m(3) - 39.2 40.6
UK infrastructure private placement facilities (2019) (4) 371.4 368.8 370.0
UK infrastructure private placement facilities (2020) (5) 204.3 203.2 201.2
CAD term facility C$300m(6) 191.1 - 175.0
Pinnacle senior debt facilities(7) - 251.9 -
Total borrowings 1,388.4 1,433.8 1,361.0
Split between:
Current liabilities - 31.9 40.6
Non - current liabilities 1,388.4 1,401.9 1,320.4
---------------------------------------------------------- ------------- ------------- ----------------------
(1) Cross-currency interest rate swaps have been used to fix the
sterling value of interest payments. This instrument also fixed the
sterling repayment of the principal. This equates to an effective
sterling interest rate of 3.2%.
(2) Cross-currency interest rate swaps have been used to fix the
sterling value of interest payments. This instrument also fixed the
sterling repayment of the principal. This equates to an effective
sterling interest rate of 4.9%.
(3) The index-linked term loan facility matured in March 2022.
On maturity the principal amount of GBP35.0 million plus GBP6.4
million of indexation was repaid wholly from cash reserves.
(4) GBP375.0 million of facilities with a range of maturities
extending out to between 2024 and 2029. Interest rate swaps have
been used to fix floating rates. This equates to an effective
weighted average sterling interest rate of 3.3%.
(5) GBP98.0 million and EUR126.5 million of facilities with a
range of maturities extending out to between 2024 and 2030.
Interest rate swaps have been used to fix sterling floating rates
on sterling facilities. Cross-currency interest rate swaps have
been used to fix the sterling value of interest payments on euro
facilities. This instrument also fixed the sterling repayment of
the principal. This equates to an effective weighted average
sterling interest rate of 2.5%.
(6) This facility matures in 2024 with the option to extend by
two years, subject to lender approval, and has a customary margin
grid reference over the Canadian dollar offered rate (CDOR). No
interest rate or cross-currency interest rate swaps are in place to
hedge the facility, so the Group is exposed to movements in both
floating interest rates and movements in the Canadian dollar.
(7) Pinnacle senior debt facilities relate to borrowings
acquired as part of the acquisition of Pinnacle. As at 30 June
2021, this included three debt facilities, being a revolver loan
(C$20.0 million), term loan (C$266.0 million) and delayed draw
(C$147.4 million). On 13 July 2021, the Group completed the
refinancing of all three Canadian dollar facilities acquired from
Pinnacle with the (C$300.0m) (term facility described above.)
The Group has a committed GBP300.0 million revolving credit
facility (RCF) and a C$10.0 million RCF. These had no cash drawings
as at 30 June 2022 or 31 December 2021. The Group has access to
certain non-recourse trade receivable finance facilities and
payment facilities, as described in note 11, which are utilised to
accelerate working capital cash inflows and defer cash
outflows.
In March 2022, the Group's index-linked term loan facility
matured. On maturity the principal amount of GBP35.0 million plus
GBP6.4 million of indexation was repaid. The loan was repaid wholly
through the Group's cash reserves.
The Group has complied with the financial covenants of its
borrowing facilities during the current period and prior year. The
Group has significant headroom and expects to continue to comply
with these financial covenants in future periods under all
reasonably possible downside scenarios.
The weighted average interest rate payable at the balance sheet
date on the Group's borrowings was 3.56% (as at 31 December 2021:
3.49%).
Analysis of borrowings
Changes in borrowings during the current and prior periods were
as follows:
As at 30 June 2022 (Unaudited)
----------------------------------------------------------------------------
Borrowings before deferred finance Net
costs Deferred finance costs borrowings
GBPm GBPm GBPm
---------------------------------------- --------------------------------------- ---------------------- -----------
Borrowings as at 1 January 2022 1,376.2 (15.2) 1,361.0
Cash movements:
Repayment of Index-linked loan (41.4) - (41.4)
Non-cash movements:
Indexation of linked loan 0.8 - 0.8
Amortisation of deferred finance costs
(note 4 ) - 3.3 3.3
Amortisation of USD loan note premium (0.2) - (0.2)
Effect of foreign exchange rates 64.9 - 64.9
Borrowings as at 30 June 2022 1,400.3 (11.9) 1,388.4
---------------------------------------- --------------------------------------- ---------------------- -----------
As at 30 June 2021 (Unaudited)
----------------------------------------------------------------------------
Borrowings before deferred finance Net
costs Deferred finance costs borrowings
GBPm GBPm GBPm
---------------------------------------- --------------------------------------- ---------------------- -----------
Borrowings as at 1 January 2021 1,085.3 (19.6) 1,065.7
Cash movements:
Drawdown of 2020 infrastructure private
placement facilities 130.8 (0.4) 130.4
Net repayment of Revolver loan (2.0) - (2.0)
Repayment of other facilities (3.8) - (3.8)
Non-cash movements:
Borrowings acquired on acquisition of
Pinnacle 256.3 (1.4) 254.9
Indexation of linked loan 0.8 - 0.8
Amortisation of deferred finance costs
(note 4 ) - 2.9 2.9
Amortisation of USD loan note premium (0.2) - (0.2)
Effect of foreign exchange rates (14.9) - (14.9)
Borrowings as at 30 June 2021 1,452.3 (18.5) 1,433.8
---------------------------------------- --------------------------------------- ---------------------- -----------
As at 31 December 2021 (Audited)
----------------------------------------------------------------------------
Borrowings before deferred finance Net
costs Deferred finance costs borrowings
GBPm GBPm GBPm
---------------------------------------- --------------------------------------- ---------------------- -----------
Borrowings as at 1 January 2021 1,085.3 (19.6) 1,065.7
Cash movements:
Drawdown of 2020 infrastructure private
placement facilities 130.8 (0.5) 130.3
Repayment of debt acquired from Pinnacle (253.1) - (253.1)
Drawdown of C$300m term facility 173.1 (0.8) 172.3
Other cash movements (3.2) - (3.2)
Non-cash movements:
Borrowings acquired on acquisition of
Pinnacle 256.3 - 256.3
Indexation of linked loan 2.2 - 2.2
Amortisation of deferred finance costs
(note 4) - 5.7 5.7
Amortisation of USD loan note premium (0.3) - (0.3)
Effect of foreign exchange rates (14.9) - (14.9)
Borrowings as at 31 December 2021 1,376.2 (15.2) 1,361.0
---------------------------------------- --------------------------------------- ---------------------- -----------
10. Reconciliation of Net Debt
Net Debt is calculated by taking the Group's borrowings (note 9)
and subtracting cash and cash equivalents. Net Debt excludes the
share of borrowings and cash and cash equivalents attributable to
non-controlling interests. See the APMs glossary and the APMs
section within the Basis of preparation for further details on the
calculation of Net Debt.
As at 31
As at 30 June December
------------------------------------- ------------
2021
2022 (Unaudited) 2021 (Unaudited) (Audited)
GBPm GBPm GBPm
------------------------------------------- ------------------ ----------------- ------------
Borrowings (1,388.4) (1,433.8) (1,361.0)
Cash and cash equivalents 288.4 405.7 317.4
Net cash and borrowings (1,100.0) (1,028.1) (1,043.6)
Non-controlling interests share of cash
and cash equivalents in non-wholly owned
subsidiaries (0.8) (0.8) -
------------------------------------------- ------------------ ----------------- ------------
Net Debt (1,100.8) (1,028.9) (1,043.6)
------------------------------------------- ------------------ ----------------- ------------
The table below reconciles Net Debt in terms of changes in these
balances across the year:
Year ended
Six months ended 30 June 31 December
------------------------------------- -------------
2021
2022 (Unaudited) 2021 (Unaudited) (Audited)
GBPm GBPm GBPm
------------------------------------------- ------------------ ----------------- -------------
Net cash and borrowings at beginning
of period (1,043.6) (775.9) (775.9)
(Decrease)/increase in cash and cash
equivalents (29.0) 115.9 27.6
Increase in net borrowings (27.4) (368.1) (295.3)
Net cash and borrowings at end of period (1,100.0) (1,028.1) (1,043.6)
------------------------------------------- ------------------ ----------------- -------------
Remove:
Non-controlling interests share of cash
and cash equivalents in non-wholly owned
subsidiaries (0.8) (0.8) -
Net Debt (1,100.8) (1,028.9) (1,043.6)
------------------------------------------- ------------------ ----------------- -------------
Borrowings include listed bonds, bank debt and revolving credit
facilities (where drawn), net of any deferred finance costs, but do
not include other financial liabilities such as IFRS 16 lease
liabilities, pension obligations and trade and other payables.
The Group has entered into cross-currency interest rate swaps,
fixing the sterling value of the principal repayments in respect of
the Group's US dollar (USD) and euro (EUR) denominated debt (see
note 13). If USD and EUR balances were translated at the hedged
rate, rather than the rate prevailing at the balance sheet date,
the carrying amount of the Group's borrowings would be impacted.
The table below reconciles Net Debt excluding the impact of hedging
instruments, as disclosed in the table above, to Net Debt including
the impact of hedging instruments through translating the
borrowings at the hedged rates.
As at 31
As at 30 June December
----------------------------------------- ----------
2021
2022 (Unaudited) 2021 (Unaudited) (Audited)
GBPm GBPm GBPm
------------------------------------------- ------------------ ----------------- ----------------
Net Debt excluding the impact of hedging
instruments (1,100.8) (1,028.9) (1,043.6)
Impact of hedging instruments (15.5) (64.7) (64.4)
Net Debt including the impact of hedging
instruments (1,116.3) (1,093.6) (1,108.0)
------------------------------------------- ------------------ ----------------- ----------------
11. Cash generated from operations
The table below reconciles the Group's profit/(loss) for the
period to the amount of cash generated from the Group's operations
(i.e. producing and selling sustainable biomass pellets, sourcing,
generating and selling electricity and gas) by adjusting for any
non-cash items.
Six months ended 30 Year ended
June 31 December
------------------------------- -------------
2021
2022 2021 (Audited)
(Unaudited) (Unaudited)
GBPm GBPm GBPm
--------------------------------------------------- --------------- -------------- -------------
Profit/(loss) for the period - continuing
operations 147.9 (6.3) 55.1
Profit for the period - discontinued
operations - 30.7 24.1
Adjustments for:
Interest payable and similar charges 36.6 34.5 70.9
Interest receivable (1.1) (0.4) (0.3)
Tax charge 52.0 60.1 68.1
Research & Development Expenditure Credit (3.1) (2.5) (7.5)
Income from associates (0.8) (0.1) (0.3)
Depreciation of property, plant and equipment 95.6 66.3 149.8
Amortisation of intangible assets 15.2 16.3 34.4
Depreciation of right-of-use assets 9.8 6.3 15.2
Impairment of non-current assets 24.9 - -
Losses on disposal of assets 1.0 - 9.4
Gain on disposal of subsidiaries - (16.2) (16.2)
Certain remeasurements of derivative contracts(1) (136.8) (51.5) (74.6)
Non-cash charge for share-based payments 4.5 2.1 7.4
Effect of foreign exchange rates (0.9) 1.3 1.3
Operating cash flows before movement
in working capital 244.8 140.6 336.8
Changes in working capital:
(Increase)/decrease in inventories (75.2) 32.8 37.4
(Increase)/decrease in receivables (28.0) 190.6 (58.0)
Increase in payables 102.8 47.8 209.7
Increase in renewable certificate assets (55.6) (267.5) (161.8)
-------------
Total cash (absorbed by)/released from
working capital (56.0) 3.7 27.3
Net defined benefit pension obligations (3.4) (6.5) (9.6)
Cash generated from operations 185.4 137.8 354.5
--------------------------------------------------- --------------- -------------- -------------
(1) Certain remeasurements of derivative contracts includes the
effect of non-cash unrealised gains and losses recognised in the
income statement and cash realised from derivative contracts
designated into hedge relationships under IFRS 9, where the gain or
loss is held in the hedge reserve pending release to the income
statement in the period the hedged transaction occurs, as well as
rebasing impact.
The Group has a strong focus on cash flow discipline and
managing liquidity. This is driven by underlying performance and
supporting actions taken to manage working capital. Actions taken
in the first half of the year are largely consistent with those
taken during 2021 as described on page 225 of the Group's 2021
Annual report and accounts. The key differences in the first half
of 2022 are described below .
The cash flow impacts described below are based on the estimated
impact on the current period when compared to the cash flows that
would have been received had the Group not taken these actions. The
current period impact is also adjusted to take account of actions
taken in prior years, which have accelerated cash flows that would
otherwise have been received in the current period had no actions
been taken. The intention is to present the overall cumulative
impact on the current period cash flow from the actions taken.
Cash from ROCs is typically realised several months after the
ROC is earned; however, through standard ROC sales and ROC purchase
arrangements the Group is able to accelerate cash flows over a
proportion of these assets. The net impact of these ROC purchases
and ROC sales on operating cash flows for the six months ended 30
June 2022 was a GBP146.4 million inflow (six months ended 30 June
2021: GBP34.1 million outflow). This is reflected as a decrease (
six months ended 30 June 2021 : increase) in renewable certificate
assets and is a component of the overall net increase ( six months
ended 30 June 2021 : increase) in renewable certificate assets
shown in the table above. The Group also has access to facilities
enabling it to sell ROC trade receivables on a non-recourse basis.
Utilisation of these facilities generated a net cash flow in the
six months ended 30 June 2022 of GBPnil (six months ended 30 June
2021: GBP48.3 million inflow).
The Customers business has access to a facility which enables it
to accelerate cash flows associated with trade receivables on a
non-recourse basis. The Group has refinanced this facility during
the six months ended 30 June 2022, extending the maturity to
January 2027 and increasing the size of the facility to GBP300.0
million from GBP200.0 million. This facility generated a net cash
inflow of GBP100.0 million in the six months ended 30 June 2022
(six months ended 30 June 2021: net cash inflow of GBP14.7
million), reflected as part of the overall movement in receivables.
Utilisation of the facility was GBP300.0 million at 30 June 2022
(as at 31 December 2021: GBP200.0 million).
The Group actively manages its liquidity requirements, including
collateral associated with the hedging of power and other
commodities. As trading positions with counterparties have matured
during the period, associated cash collateral held by the Group at
31 December 2021 has been returned, and at 30 June 2022 the Group
had a net receipt of collateral from counterparties of GBP46.5
million (as at 31 December 2021: GBP172.8 million). This has
resulted in a cash outflow of GBP126.3 million in the period (six
months ended 30 June 2021: GBP35.2 million inflow) reflected
primarily as a decrease (six months ended 30 June 2021: increase)
in payables in the table above.
12. Financial risk management
The Group's activities expose it to a variety of financial
risks, including commodity price risk, interest rate risk,
liquidity risk, inflation risk, counterparty risk and credit risk.
The Group's overall risk management programme focuses on the
unpredictability of commodity and financial markets and seeks to
manage potential adverse effects on the Group's financial
performance.
The Group uses derivative financial instruments to hedge certain
risk exposures. Risk management is overseen by risk management
committees which identify, evaluate and hedge financial risks in
close coordination with the Group's trading and treasury functions
under policies approved by the Board.
Volatility in financial and commodity markets has continued in
2022, in part due to the conflict in Ukraine. This volatility has
impacted economies and markets around the world, including the UK
energy market, which has in part contributed to rising inflation.
The geopolitical environment and concerns over the macro-economic
outlook have also contributed to a weakening in sterling during
2022. See the Principal risks and uncertainties section for further
details on both the Russia-Ukraine conflict and energy market
conditions. As a result of these factors, the valuation of the
Group's derivative financial instruments, in particular power, gas,
foreign currency contracts, inflation and oil, remain at elevated
levels compared to previous periods.
The Customers business has seen an increase in the potential for
default within deemed supply customers during the period. Deemed
supply is where electricity or gas is supplied to a site or
customer that is yet to enter into a contract and, as a result,
they are charged on a standard variable tariff based on merchant
power and gas prices. Given the increases in these standard
variable prices during the period, the recoverability of these
balances has become more challenging. The Group has updated its
expected credit loss provision to reflect this change, which has
resulted in an immaterial increase in the overall provision. As at
30 June 2022, the total expected credit loss provision was GBP53.8
million (as at 31 December 2021: GBP46.6 million).
See pages 253 - 269 of the Group's 2021 Annual report and
accounts for further details on the Group's financial risk
management.
13. Fair value financial instruments
The Group makes extensive use of derivative financial
instruments for the purpose of managing its exposure to the
financial risks set out in note 12.
Where possible, the Group has taken advantage of the own-use
exemption which allows qualifying contracts to be excluded from
fair value mark-to-market accounting. This applies to certain
contracts for non-financial commodities entered into and held for
the Group's own purchase, sale or usage requirements. Other
contracts are accounted for as derivatives in accordance with IFRS
9 and are recorded in the balance sheet at fair value.
Changes in the fair value of derivative financial instruments
are reflected through the hedge reserve to the extent that the
relevant contracts are designated as effective hedges in accordance
with IFRS 9, or in the Condensed consolidated income statement
where the hedge accounting requirements are not met. To ensure
these derivatives are reflected at their contracted price in the
period they relate to, these changes in fair value are not
reflected within Adjusted Results in the Condensed consolidated
income statement.
For financial reporting purposes, the Group has classified
derivative financial instruments into five categories:
-- Commodity contracts - forward contracts for the sale or
purchase of a physical commodity which is expected to be settled
through physical delivery of the commodity.
-- Financial contracts - oil and weather-related contracts, as
well as contracts for commodities that are not expected to be
settled through physical delivery of the commodity.
-- Foreign currency exchange contracts - currency related
contracts including forwards, vanilla options and structured option
products.
-- Interest rate and cross-currency contracts - contracts which
swap one interest rate for another in a single currency, including
floating-to-fixed interest rate swaps, contracts which swap
interest and principal cash flows in one currency for another
currency, including fixed-to-fixed and floating-to-fixed
cross-currency interest rate swaps, and swaptions.
Inflation rate swaps - swap contracts, such as
floating-to-fixed, which are linked to an inflation index such as
RPI or CPI, and inflation swaptions.
The table below details the carrying amounts recognised for the
Group's derivative financial instruments:
As at 30 June As at 31 December
----------------------------
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
-------------
Derivative assets
Commodity contracts 1,159.4 412.2 998.8
Financial contracts 395.8 40.2 143.9
Foreign currency exchange contracts 308.2 69.2 97.5
Interest rate and cross-currency swaps 34.6 1.3 4.6
Inflation rate swaps - 4.7 1.3
Total derivative assets 1,898.0 527.6 1,246.1
-------------
Split between:
------------- -------------
Non-current assets 439.2 125.9 357.5
------------- -------------
Current assets 1,458.8 401.7 888.6
-------------
Derivative liabilities
Commodity contracts (1,475.3) (373.7) (1,087.9)
Financial contracts (403.8) (30.5) (90.2)
Foreign exchange contracts (106.8) (176.8) (137.7)
Interest rate and cross-currency swaps (12.8) (68.9) (48.4)
Inflation rate swaps (231.2) (9.9) (140.3)
-------------
Total derivative liabilities (2,229.9) (659.8) (1,504.5)
-------------
Split between:
-------------
Non-current liabilities (523.8) (168.1) (541.8)
-------------
Current liabilities (1,706.1) (491.7) (962.7)
-------------
IFRS 13 requires categorisation of the Group's financial
instruments in accordance with the following hierarchy in order to
explain the basis on which their fair values have been
determined:
-- Level 1 - Fair value measurements are those derived from
quoted prices (unadjusted) in active markets for identical assets
or liabilities;
-- Level 2 - Fair value measurements are those derived from
inputs, other than quoted prices, included within Level 1, that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
-- Level 3 - Fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
Categorisation within this fair value measurement hierarchy has
been determined on the basis of the lowest level input that is
significant to the fair value measurement of the relevant asset or
liability.
The table below details the carrying amounts of fair value
financial instruments including their levels in the fair value
hierarchy:
As at 30 June As at 31 December
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Assets
Level 2
Derivative financial instruments
(as above) 1,898.0 527.6 1,246.1
Level 3
Equity investment 1.5 1.5 1.5
Contingent consideration 27.7 27.7 27.7
Total assets 1,927.2 556.8 1,275.3
Liabilities
Level 2
Derivative financial instruments
(as above) (2,229.9) (659.8) (1,504.5)
Total liabilities (2,229.9) (659.8) (1,504.5)
There have been no transfers during the period between Level 1,
2 or 3 category inputs.
The change in fair value of derivative financial instruments in
the period has been driven by movements in underlying commodity
prices and financial markets. The Group has a large portfolio of
forward power sales and gas purchases, the valuations of which are
impacted by changes in market prices. The Group also has a large
portfolio of forward currency contracts which fix the sterling cost
of future fuel purchases denominated in foreign currencies. The
Group has entered into a number of inflation swap contracts in
order to hedge annual price increases in certain of its generation
activities, such as its CfD revenue and Capacity Market revenue,
both linked to UK CPI.
Fair value measurement
-- Commodity contracts - the fair value of open commodity
contracts that do not qualify for the own-use exemption is
calculated by reference to forward market prices at the balance
sheet date.
-- Financial contracts - the fair value of financial contracts
is calculated by reference to forward market prices at the balance
sheet date.
-- Foreign currency exchange contracts - the fair value of
forward foreign currency exchange contracts is determined using
forward currency exchange market rates at the balance sheet
date.
-- Interest rate and cross-currency contracts - the fair value
of interest rate swaps is calculated by reference to forward market
curves at the balance sheet date for the relevant interest index.
The fair value of cross-currency interest rate swaps is calculated
using the relevant forward currency exchange market rates for
fixed-to-fixed swaps and by using the relevant forward currency
exchange market rates and interest indices for floating-to-fixed
swaps.
-- Inflation rate contracts - The fair value of inflation rate
swaps is calculated by reference to forward market curves at the
balance sheet date for the relevant inflation index.
Given the maturity profile of all these contracts, liquid
forward market price curves are available for the duration of the
contracts.
The fair values of all derivative financial instruments are
discounted to reflect the credit risk inherent within the
instrument and the time value of money.
The fair value of commodity contracts, financial contracts,
foreign currency exchange contracts, interest rate and
cross-currency contracts, and UK RPI inflation swaps are largely
determined by comparison between forward market prices and the
contract price; therefore, these contracts are categorised as Level
2.
Level 3 fair value s
The fair value of the UK CPI inflation swaps comprises an RPI
and CPI component. Whilst the RPI component is based on observable
market rates, the CPI component is based on unobservable rates and
therefore deemed to be Level 3 in the fair value hierarchy.
However, this component is not material to the overall valuation
and therefore the instruments as a whole are determined to be Level
2 in line with IFRS 13.
The valuation technique used for non-listed equity investments
comprises unobservable inputs and are therefore classified as Level
3. However, given the valuations as a whole for Level 3 equity
investments are immaterial, it is not deemed necessary to include
all Level 3 disclosures.
The consideration receivable by the Group for the sale of the
CCGT portfolio in 2021 includes GBP29.0 million that is contingent
on certain triggers in respect of the option to develop the Damhead
Creek land disposed of as part of the sale of these assets. The
fair value measurement for the contingent consideration has been
categorised as Level 3 based on the inputs to the valuation
techniques used.
Significant unobservable Relationship between
inputs and range significant unobservable
of inputs (probability input and fair value
Valuation approach weighted) measurement
Contingent The fair value of the contingent Forecasted future The fair value measurement
consideration consideration is determined Capacity Market would increase/(decrease)
using a discounted cash clearing prices: with:
flow model. The valuation GBP4.80/kW - GBP75.00/kW - higher/(lower) forecasted
approach is based on a (GBP24.70/kW) Capacity Market clearing
calculation of the probability prices causing a higher/(lower)
of the option to develop Required internal probability of the option
the Damhead Creek land rate of return for over the Damhead Creek
being exercised. This probability the Damhead Creek land being exercised.
is calculated using a range development to proceed: - a reduction/(increase)
of forecasts for future 15.0% in the internal rate
Capacity Market auctions (15.0%) of return required for
and the assumption that the Damhead Creek development
the option to develop the to proceed causing a
land would be exercised higher/(lower) probability
if the Capacity Market of the option over the
price were to clear above Damhead Creek land being
a certain level, providing exercised.
sufficient certainty around
the economics of the development.
There have been no movements in the Level 3 fair value
instruments in the six months ended 30 June 2022.
Sensitivities are disclosed below for reasonably possible
changes to the unobservable inputs that would have a significant
impact on the fair value measurement:
Increase/(decrease)
in profit before
tax
GBPm
30 June 2022
Forecasted future Capacity Market clearing prices - Increase 75% 1.8
- Decrease 75% (12.3)
Required internal rate of return for the Damhead
Creek development to proceed - Increase 4% (3.7)
- Decrease 4% 2.2
14. Contingencies
The following matters reflect potential future flows of cash,
arising from existing events, that are dependent on a future event
that is outside the control of the Group. The amount and timing of
any payment or receipt is uncertain and, in some circumstances,
cannot be measured reliably.
Guarantees
In addition to the amounts drawn down as borrowings (see note
9), certain members of the Group guarantee the obligations of a
number of banks in respect of letters of credit issued by those
banks to counterparties of the Group. As at 30 June 2022, the
Group's contingent liability in respect of letters of credit issued
under the RCF amounted to GBP56.3 million (as at 31 December 2021:
GBP74.4 million). The probability of future cash flows as a result
of these guarantees is considered remote.
The Group also guarantees obligations in the form of surety
bonds with a number of insurers. As at 30 June 2022 the Group's
contingent liability in relation to these guarantees was GBP145.0
million (as at 31 December 2021: GBP142.1 million). The probability
of future cash flows as a result of these guarantees is considered
remote.
Collateral is sometimes required to be provided 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 provided to the counterparty. These positions
reverse when contracts are settled, and the collateral is returned.
The Group typically aims to cover collateral positions with a
combination of letters of credit, surety bonds and cash.
The letters of credit and surety bond amounts above include
amounts utilised to cover commodity trading collateral requirements
of GBP17.5 million (as at 31 December 2021: GBP42.5 million) and
GBP108.0 million (as at 31 December 2021: GBP107.1 million)
respectively.
Contingent liabilities
HSE legal action
In the prior year the Group received notice of legal action from
the Health and Safety Executive (HSE) in relation to wood dust at
Drax Power Station regarding operations prior to 2017. No amount
has been provided in respect of this legal action as, following
consultation with external professional advisers, the Group
believes it is in a strong position to be able to defend this
claim.
Contingent assets
Billing system
Drax Energy Solutions Limited has lodged a claim against a
supplier for damages caused by the supplier's misrepresentation and
failure to perform under a contract for delivery of a new billing
system. The directors have considered the potential legal outcomes
of the claim with external professional advisors and believe that a
favourable outcome is probable. However, a contingent asset has
been disclosed rather than a receivable recognised at 30 June 2022,
as receipt of the amount is dependent on the outcome of the
claim.
15. Adoption of new and amended accounting standards
The following amendments became effective for the first time in
2022:
-- Annual Improvements 2018-2020 Cycle - effective from 1 January 2022.
-- IAS 37 - Onerous Contracts: Cost of Fulfilling a Contract - effective from 1 January 2022.
-- IAS 16 (amended) - Property, Plant and Equipment: Proceeds
before Intended Use - effective from 1 January 2022.
-- IFRS 3 - Reference to the Conceptual Framework - effective from 1 January 2022.
The adoption of these amendments in the current period has not
had a material impact.
At the date of approval of this report, the following new or
amended standards and relevant interpretations, which have not been
applied in these financial statements, were in issue but not yet
effective (and some of which were pending endorsement by the UK
Endorsement Board (UKEB) - marked by *) :
-- IFRS 10 (amended) - Consolidated Financial Statements and IAS
28 (amended) - Investments in Associates and Joint Ventures (2011)
- effective date deferred indefinitely.
-- IFRS 17 - Insurance contracts - effective from 1 January 2023.
-- IAS 1 (amended) - Classification of Liabilities as Current
and Non-current - effective date deferred until not earlier than 1
January 2024*.
-- IAS 1 (amended) - Disclosure of Accounting Policies - effective from 1 January 2023*.
-- IAS 8 (amended) - Definition of Accounting Estimates - effective from 1 January 2023*.
-- IAS 12 (amended) - Income Taxes - Assets and Liabilities
arising from a Single Transaction - effective from 1 January
2023*.
Adoption of new or amended standards and relevant
interpretations in future periods is not expected to have a
material impact on the financial statements of the Group.
16. Reproduction of comparative financial information
Consolidated income statement for the year ended 31 December
2021
For information, the full Consolidated income statement and
Consolidated statement of comprehensive income for the year ended
31 December 2021 is reproduced below.
Consolidated income statement
Year ended 31 December
2021 (Audited)
Exceptional
Adjusted items and
Results(1) certain remeasurements Total Results
GBPm GBPm GBPm
Revenue 5,173.9 (85.9) 5,088.0
Cost of sales (4,331.1) 134.3 (4,196.8)
Gross profit 842.8 48.4 891.2
Operating and administrative expenses (448.4) (21.5) (469.9)
Impairment losses on financial assets (16.3) - (16.3)
Depreciation (164.5) (0.5) (165.0)
Amortisation (34.4) - (34.4)
Losses on disposal of fixed assets (9.4) - (9.4)
Income from associates 0.3 - 0.3
Operating profit 170.1 26.4 196.5
Foreign exchange gains/(losses) 0.9 (5.1) (4.2)
Interest payable and similar charges (70.9) (0.3) (71.2)
Interest receivable 0.4 - 0.4
Profit before tax 100.5 21.0 121.5
Tax
* Before impact of changes in tax rate (11.7) (5.7) (17.4)
* Effect of changes in tax rate (0.4) (48.6) (49.0)
Total tax charge (12.1) (54.3) (66.4)
Net result from continuing operations(2) 88.4 (33.3) 55.1
Net result from discontinued operations 16.7 7.4 24.1
Profit/(loss) for the period 105.1 (25.9) 79.2
Attributable to:
Owners of the Parent Company 105.6 (25.9) 79.7
Non-controlling interests (0.5) - (0.5)
Earnings per share Pence Pence
For net result for the period from continuing
operations attributable to the owners
of the Parent Company
- Basic 22.3 13.9
- Diluted 21.5 13.5
For net result for the period attributable
to the owners of the Parent Company
- Basic 26.5 20.0
- Diluted 25.6 19.3
(1) Adjusted Results are stated after adjusting for exceptional
items (including acquisition costs, restructuring costs and debt
restructuring costs), and certain remeasurements, see Note 6 for
further detail.
(2) Net result from continuing operations of GBP88.4 million is
inclusive of GBP(0.5) million attributable to non-controlling
interests.
Consolidated statement of comprehensive income
Year ended
31 December
2021
(Audited)
GBPm
Profit for the period 79.2
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement gains on defined benefit pension scheme 30.7
Deferred tax on remeasurement of defined benefit pension
scheme (7.2)
Deferred tax on share-based payments 5.4
Net fair value gains on cost of hedging 17.3
Deferred tax on cost of hedging (7.7)
Net fair value gains on cash flow hedges 1.1
Deferred tax on cash flow hedges 3.6
Items that may be subsequently reclassified to profit
or loss:
Exchange differences on translation of foreign operations 6.1
Net fair value losses on cash flow hedges (182.0)
Net gains on cash flow hedges reclassified to the income
statement 12.6
Deferred tax on cash flow hedges 37.6
Other comprehensive expense for the period (82.5)
Total comprehensive expense for the period (3.3)
Attributable to:
Owners of the Parent Company (0.2)
Non-controlling interests (3.1)
17. Post balance sheet events
Coal unit availability extension
In response to increased pressure on European gas markets and
associated concerns about electricity security of supply in the UK
this winter, the UK Government has asked owners of legacy
coal-fired generation assets, including Drax, to work together with
National Grid to temporarily extend the life of these assets to
March 2023.
Under the terms of the agreement, Drax will be paid a fee for
the service and compensated for costs incurred, including coal
costs, in connection with the operation of the coal units in
accordance with the agreement.
INDEPENT REVIEW REPORT TO DRAX GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2022 which comprises the income statement,
the balance sheet, the statement of changes in equity, the cash
flow statement and related notes 1 to 17.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2022 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (ISRE) (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed above, the annual financial statements of the group
will be prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE (UK), however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the group a conclusion on the
condensed set of financial statements in the half-yearly financial
report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council. Our work
has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, UK
25 July 2022
Alternative performance measures (APMs) glossary table
The measures described below are used throughout the Half Year
Report 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 performance of
the Group. These measures 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.
Closest IFRS
equivalent
APM measure Purpose Definition
Adjusted Results Total Results The Group's Adjusted Total Results measured
Results are consistent in accordance with IFRS
with the way executive excluding the impact
management and the Board of exceptional items
assess the performance and certain remeasurements
of the Group. Adjusted (defined in note 6).
Results are intended
to reflect the underlying
trading performance of
the Group's businesses
and are presented to
assist users of the 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.
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 and Adjusted Diluted
earnings per share.
Adjusted EBITDA Operating Adjusted EBITDA is the Earnings before interest,
profit* primary measure used tax, depreciation, amortisation,
by executive management gains/losses on disposal
and the Board to assess of assets and impairment
the financial performance of non-current assets,
of the Group as it provides excluding the impact
a more comparable assessment of exceptional items
of the Group's year-on-year and certain remeasurements
trading performance. (defined in note 6).
It is also a key metric Adjusted EBITDA excludes
used by the investor any earnings from associates
community to assess performance and Adjusted EBITDA attributable
of the Group's operations. to non-controlling interests.
Adjusted EBITDA is stated
from both continuing
operations and discontinued
operations.
Adjusted Basic Basic EPS Adjusted Basic EPS represents Adjusted Basic EPS is
EPS the amount of Adjusted calculated by dividing
earnings (Adjusted post-tax the Group's Adjusted
profits) attributable earnings attributable
to each ordinary share. to the owners of the
Parent Company (Adjusted
profit after tax) by
the weighted average
number of ordinary shares
in issue during the period.
Adjusted Diluted Diluted EPS Adjusted Diluted EPS Adjusted Diluted EPS
EPS demonstrates the impact is calculated by dividing
upon the Adjusted Basic the Group's Adjusted
EPS if all outstanding earnings attributable
share options, that are to the owners of the
expected to vest on their Parent Company (Adjusted
future maturity dates, profit after tax) by
were exercised and treated the weighted average
as ordinary shares as number of ordinary shares
at the balance sheet in issue during the period
date. and dilutive potential
ordinary shares under
share plans.
Net Debt Borrowings Net Debt is a key measure Total borrowings less
less cash of the Group's liquidity cash and cash equivalents.
and cash equivalents and its ability to manage Total borrowings include
current obligations. external financial debt,
Net Debt is used as a such as loan notes, term
basis by debt rating loans and amounts drawn
agencies and in the calculation in cash under RCFs but
of the Group's financial excludes other financial
covenant requirements. liabilities such as lease
liabilities calculated
in accordance with IFRS
16, pension obligations
and trade and other payables.
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 including Borrowings Net Debt including the Net Debt adjusted for
the impact less cash impact of hedging instruments the impact of hedging
of hedging and cash equivalents shows the economic substance instruments. Any borrowings
instruments of the Net Debt position, that have hedging instruments
in terms of actual expected in place are adjusted
future cash flows to to reflect those borrowings
settle that debt. at the hedged rate.
Cash and committed Cash and cash This is a key measure Total cash and cash equivalents
facilities equivalents of the Group's available plus the value of the
liquidity and the Group's Group's committed but
ability to manage its undrawn facilities (including
current obligations. the Group's RCFs, loan
It shows the value of facilities and the Customers
cash available to the trade receivable factoring
Group in a short period facility).
of time.
Debt service Finance costs This is a measure showing Interest payable and
the cost of the Group's similar charges less
external borrowings (bonds any charges unrelated
and bank loans). to external borrowings.
Net Debt to Borrowings The Net Debt to Adjusted Net Debt excluding the
Adjusted EBITDA less cash EBITDA ratio is a debt impact of hedging instruments
ratio and cash equivalents ratio that gives an indication divided by Adjusted EBITDA
divided by of how many years it for the last 12 months.
operating would take the Group Expressed as a ratio
profit to pay back its debt to 1.
if Net Debt and EBITDA
are held constant.
The Group has a long-term
target for Net Debt to
Adjusted EBITDA ratio
of around 2.0 times.
Cost of production Cost of sales A key metric showing Cost of sales attributable
the cost of produced to biomass production
biomass. plus an allocation of
Also, a key metric in indirect costs divided
monitoring the Group's by tonnes of biomass
strategy to reduce biomass produced.
costs. Expressed as a cost per
tonne produced.
Capital expenditure Plant, Property Used to show the Group's PPE additions plus Intangible
and Equipment total spend on PPE and asset additions excluding
(PPE) additions intangible assets in any additions to decommissioning
and Intangible a year. assets.
asset additions
* Operating profit is presented on the Group's Condensed
consolidated income statement; however, it is not defined per IFRS.
It is a generally accepted profit measure.
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.
BEIS
The Government Department for Business, Energy and Industrial
Strategy, bringing together the responsibilities for business,
industrial strategy, science, innovation, energy and climate
change.
Black start
Procedure used to restore power in the event of a total or
partial shutdown of the national electricity transmission
system.
Biomass
Organic material of non-fossil origin, including organic waste,
that can be converted into bioenergy through combustion. Drax uses
woody biomass from low grade wood, sawmill residues and forest
residues, in the form of compressed wood pellets, to generate
electricity at Drax Power station and to sell to third parties in
the biomass market.
Capacity Market
Part of the 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 will also receive a top-up payment for the additional
amount. Conversely, if the market reference price is above the
strike price, the generator must pay back the difference.
Combined Cycle Gas Turbine (CCGT)
A form of highly efficient energy generation technology that
combines a gas-fired turbine with a steam turbine.
ESG
Environmental, Social and Governance.
EU ETS
The EU Emissions Trading System is a mechanism introduced across
the EU to reduce emissions of CO(2) ; the scheme is capable of
being extended to cover all greenhouse gas emissions.
Forced outage
Any reduction in plant availability, excluding planned
outages.
Frequency response
The automatic change in generation output, or in demand, to
maintain a system frequency of 50Hz.
GGR
Greenhouse gas removal.
Grid charges
Includes transmission network use of system charges (TNUoS),
balancing services use of system charges (BSUoS) and distribution
use of system charges (DUoS).
Headroom and footroom
Positive "reserve" (see below) may be termed headroom and
negative reserve as footroom.
I&C
Industrial & Commercial.
IFRS
International Financial Reporting Standards.
IFRS IC
International Financial Reporting Standards Interpreta tions
Committee.
Lost time incident rate (LTIR)
The frequency rate is calculated on the following basis:
(fatalities + 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.
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.
RCF
Revolving credit facility.
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.
RIDDOR
Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations.
ROCs
A Renewable Obligation Certificate (ROC) is a certificate issued
to an accredited generator for electricity generated from eligible
renewable sources.
SaaS
Software as a Service.
SME
Small and Medium Enterprises.
Summer
The calendar months April to September.
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.
Total recordable incident rate (TRIR)
The frequency rate is calculated on the following basis:
(fatalities + lost time injuries + 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 System is a mechanism introduced across
the UK to reduce emissions of CO(2) ; the scheme is capable of
being extended to cover all greenhouse gas emissions.
Voltage control/reactive power
Maintenance of voltage within specified limits in order to
"push" power around the system to maintain safety and
stability.
Winter
The calendar months October to March.
Drax Group plc
Drax Power Station
Selby
North Yorkshire YO8 8PH
Telephone: +44 (0)1757 618381
www.drax.com
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