12th May 2006 07:00
Drax Group PLC12 May 2006 Drax Group plc holds its AGM today at the City Presentation Centre, ChiswellStreet, London, at 11:00am. At this meeting Gordon Horsfield, Chairman of DraxGroup plc, will provide shareholders with the following update: "Good morning Ladies and Gentlemen, welcome to the first ever Annual GeneralMeeting of Drax Group plc. Today I will review the Company's 2005 activities and performance, developmentsin 2006, and also provide an update on the Board's intentions regarding thereturn of cash to shareholders beyond the company's needs. Firstly, though let us start with our 2005 performance compared with 2004. • Revenue from Generation up 55% to £849 million • Average capture price of electricity up 51% to £33.9/MWh • Net sales of 23.2TWh; an increase of 0.3TWh • Gross Margin increased by 63% to £389 million • EBITDA increased by 166% to £239 million • Although not directly affecting in a material way the results for2005, we also saw improved trading counterparty interest from 15 December 2005onwards following the enhanced credit status of the Group upon refinancing andlisting • Very importantly, we achieved the best full year performance in forcedoutage rate since 1997 • Total recordable injury rate down by 39% I believe these results reflect great credit on everyone in the Drax team. Notonly were there the inevitable pressures and distraction posed by work which hadto be done throughout much of the year to prepare Drax for re-financing andlisting, but during the Autumn they also had to deal with three separateindicative bids for the company. Turning briefly now to 2006. As notified in our Preliminary Results presentation, towards the end of nextmonth we intend to issue a Trading Statement which will include an update onour contracted position. Since our results presentation, it is noteworthy that gas prices have remainedrelatively high by historical standards and gas plant continues to be themarginal price setter for power in the market. As a consequence, with coalprices having remained relatively stable, market conditions have continuedfavourable to coal-fired generators; this has been helpful whilst we have drivenforward our trading strategy of deepening and extending our hedged position. In that context, we were pleased to be able to announce our power salesagreement with Centrica which was signed in early April. The contract is inline with our published trading strategy. It secures the sale of roughly theequivalent of the output from one of our six units for just over five yearscommencing in October 2007 and, importantly it leaves Drax with the option tosatisfy the obligation to deliver electricity either from our own production orby purchasing power in the market, should that be cheaper than our marginalcosts of production from time to time. Turning now to our distribution policy. When we announced our preliminary results on 8 March we took the opportunity toreaffirm our distribution policy of paying an annual basedividend of £50m perannum (payable in line with normal listed company practice) and additionallytodistribute substantially all of any remaining cash flow subject to theavailability of reserves and after making provision for debt payments, debtservice requirements (if any), capital expenditure, and other expected businessrequirements. In respect of our base dividend we advised shareholders in our preliminaryannouncement that we intend to pay an interim dividend in respect of the 6months to 30 June 2006 of 4 pence per share, being approximately £16.3m, beingpayable in the Autumn. We also reported that the outlook for 2006 was positive, that significant cashsurpluses are expected to arise in 2006, and that we therefore expected to makeour first additional distribution in the current year. We further reported thatwork had commenced to identify the most appropriate method for returning surpluscash and that we expected to be able to advise shareholders at this AGM of theproposed method of return. This would then be followed by an indication of thelikely range of distribution, timing and shareholder approval process in aTrading Update at the end of June 2006. I am pleased to be able to confirm that our programme remains on schedule andthat we are now able to confirm the proposed method of returning excess cash toshareholders. After due consideration, and having consulted with its advisers and havingreceived feedback from investors following our results presentation, the Boardhas concluded that the most appropriate means of returning excess cash would beby way of a special dividend.. In reaching this conclusion a number of factors were taken into account. Werecognised a desire to pass surplus cash to shareholders in a timely andtransparent manner, both on this occasion and indeed on future occasions.Additionally, noting the expectation of future distributions, the need forsimplicity and certainty of execution were also important. As is common when paying special dividends the declaration of the dividend willbe accompanied by a resolution, to be considered by shareholders at anExtraordinary General Meeting which we expect to be early in October, toundertake a share consolidation. Such a consolidation will allow 'before' and'after' comparisons to be made more easily and will also ensure that employeesare not unfairly penalised under the all-employee share SAYE scheme.Incidentally, we expect to make the first grants of SAYE options on 23 May 2006and at the same time to make an allocation of newly issued shares to each of our626 qualifying employees, with a market value (determined according to thescheme rules) of £2,000 per head, under the Revenue-approved share incentiveplan. Under the terms of our existing debt arrangements we have taken advantage of thefacility to raise additional debt. We have signed a loan agreement for £100m,the maximum permissible. The proceeds will be used to refinance the £57.5m ofprincipal scheduled for repayment on 30 June 2006 and we are currently reviewingwhether there is a requirement to partially reduce the deficit under our finalsalary pension scheme which stood at £44.7m at the end of December 2005. Anyexcess proceeds from the new debt will be included within the special dividend. As previously intimated, we continue to keep our capital structure under regularreview but we are unlikely to undertake a major refinancing until we have madefurther progress in executing our trading strategy, until the presentuncertainties surrounding our allocation of carbon for phase 2 of the EUETScovering 2008-2012 are removed, and until we are able to assess any possibleimplications for the Group of the Government's Energy Review, the results ofwhich will not be known until the Autumn of this year at the earliest. Nevertheless, we hope that the intention to make our first ordinary dividendpayment, the intention to pay a special dividend in the current calendar yearand the additional debt facility of £100m will send a clear signal toshareholders that we are a company which will deliver on our promises, includingour policy to secure alignment of our trading and operational strategies and ourcapital structure." Enquires: Investor Relations Andrew Jones +44 (0) 1757 612 938 Media Tulchan Communications David Trenchard and Peter Hewer +44 (0) 20 7353 4200 Website: www.draxgroup.plc.uk This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Drax