26th Jul 2016 07:07
LONDON (Alliance News) - Drax Group PLC Tuesday said full year earnings are now likely to be at the lower end of the company's guidance range as the company drastically cut its interim dividend by reducing the payout by almost 60% following a drop in underlying earnings.
Drax will pay a dividend of 2.1 pence for the first half of 2016 compared to the 5.1 pence paid in the previous year.
The power generation company and owner of the Drax power station in Selby said pretax profit in the first half of the year came in 3.5 times higher to GBP184.2 million from only GBP53.0 million a year before even as revenue declined to GBP1.48 billion from GBP1.51 billion.
The main driver behind the significant lift to profit was the GBP163.4 million worth of unrealised gains that were booked in the first half, compared to a GBP3.0 million loss a year earlier. That is mainly related to the company's foreign currency hedging programme to support biomass procurement activities for the Drax power plant.
Gross profit in the first half fell to GBP182.2 million from GBP234.2 million as the fall in revenue was exacerbated by a rise in costs, which totalled GBP1.30 billion in the first half compared to GBP1.27 billion a year earlier, a 2.4% lift.
Earnings before interest, tax, depreciation and amortisation dropped to GBP70.3 million from GBP119.9 million. The unrealised gains then pushed operating profit up to GBP181.7 million from only GBP67.1 million a year earlier.
Notably, underlying earnings that exclude the unrealised gains totalled GBP17.0 million in the first half, a 59% fall from GBP41.0 million a year earlier.
Drax's dividend policy is to pay out 50% of underlying earnings, meaning the interim dividend has dropped in line with those earnings in the first half of the year.
"Whilst we have seen signs of power and commodity prices improving, our financial performance was impacted by the challenging environment in which we operate," said Chief Executive Dorothy Thompson.
Notably, Drax said full year Ebitda will be subject to when the contracts-for-difference is awarded for its third unit that has been converted to burn wood pellets rather than coal - but said it is likely to be at the lower end of the guidance range of GBP146.0 to GBP185.0 million.
In 2015, Ebitda declined 26% year-on-year and totalled GBP169.0 million, meaning Ebitda this year is likely to fall by up to 14%.
"We have been advised that the recent decision by the UK to leave the European Union should have no impact on state aid approval for the contract-for-difference awarded to our third unit conversion. We remain fully engaged with officials in both Whitehall and Brussels and are confident that approval will be given in the autumn," said the company.
Net debt at the end of June stood at GBP85.0 million, a huge reduction from GBP187.0 million at the end of 2015.
Capital investment in the first half totalled GBP38.0 million and the guidance for the full year remains unchanged at GBP80.0 to GBP100.0 million.
Operationally, Drax generated 70% of all its electricity from biomass in the first half compared to only 37% this time last year, demonstrating the impact of the ongoing conversion of the coal-fired power plant to burn wood pellets.
"Drax delivered a good operational performance over the last six months, a period during which around 70% of our electricity generation was renewable - enough to power Leeds, Manchester, Sheffield and Liverpool combined - truly a renewable northern powerhouse," said Drax.
However, the amount of power generated in the half fell considerably, declining to 10.9 terrawatt hours from 14.0 terrawatt hours a year ago. Biomass generation totalled 7.5 terrawatt hours compared to 5.2 terrawatt hours a year ago.
Drax said pellet operations in the US, where they are sourced, is performing in line with expectations and the investment into the conversion of the plant remains on budget and on schedule.
"We said at our full year results, that 2015 was a tough year and 2016 would be equally challenging. Whilst there has been some recovery in forward power prices they are still well below what might be considered historic norms. With electricity supply for this coming winter expected to be very tight, there may well be short-term price spikes if there is a cold winter in the UK and continental Europe," said Drax.
Drax shares were down 2.8% to 342.30 pence per share on Tuesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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