12th Sep 2006 07:01
Drax Group PLC12 September 2006 DRAX GROUP PLC (Symbol: DRX) INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 (London - 12 September 2006) Drax Group plc, the UK power generator, announcesits interim results for the six months ended 30 June 2006 and reports on keydevelopments to date. Highlights: • Revenue from generation increased to £603 million (2005: £366 million)(1) • EBITDA(3)(4) of £239 million (2005: £72 million) • Operating profit of £329 million (2005: £69 million) • Basic and diluted earnings per share of 57 pence (2005: 32 pence) • Interim dividend of 4 pence per share • Special dividend of 80 pence per share • Improved forward contracted power sales volume and price Six months ended 30 June 2006 compared to six months ended 30 June 2005 Six months ended 30 June 2006 2005 £ million £ millionRevenue from generation (1) 603 366Total revenue 650 404Gross profit (2) 320 140EBITDA (3)(4) 239 72EBITDA (after exceptional items)(5) 347 87Operating Profit 329 69Profit before tax 317 13 (1) Revenue from generation excludes revenues associated with power purchases of £47 million (2004: 38 million).(2) Gross profit is defined as total revenues less total fuel costs.(3) EBITDA is profit before interest, tax, depreciation and amortisation, exceptional items and unrealised gains/losses on derivative contracts.(4) Exceptional items in 2006 comprise income of £19 million received under the TXU Claim. Exceptional items in 2005 comprise income of £19 million due to the reversal of provisions relating to impairment of tangible fixed assets and £256 million received under the TXU Claim, partially offset by a charge for share-based payment transactions under the LTIP of £11 million. Unrealised gains on derivative contracts in 2006 were £89 million. Unrealised losses on derivative contracts in 2005 were £249 million.(5) EBITDA (after exceptional items) is profit before interest, tax, depreciation and amortisation. Commenting on the results, Dorothy Thompson, Chief Executive of Drax, said: "I am pleased to announce that we are successfully delivering on our strategyand that the Group is performing well. We are reporting a strong operating,trading and financial performance and announcing a special dividend of 80 penceper share plus an interim dividend of 4 pence per share to be paid in October." Management Presentation and Conference Call Management will host a presentation for analysts and investors at 9:00am (UKTime) today, 12 September 2006, at the City Presentation Centre, 4 ChiswellStreet, Finsbury Square, London, EC1Y 4UP. The meeting can also be accessed remotely via a conference call or alternativelyvia a live webcast, as detailed below. After the meeting, a video webcast andrecordings of the call will be made available and access details for theserecordings are also set out below. A copy of the presentation will be made available from 7:00am (UK time) onTuesday 12 September for download at www.draxgroup.plc.uk (>>Financial Results2006). Event Title: Drax Group plc: Half Year ResultsEvent Date: Tuesday 12 September 2006Event Time: 9:00am (UK time) UK Call In Number: 020 7162 0025International Call In Number: +44 7162 0025US Call In Number: +1 334 323 6201 Webcast detailsLive Event Link: http://events.webeventservices.com/Drax/2006/09/12/ UK Instant ReplayStart Date: 12 September 2006Delete Date: 12 October 2006Dial In Number: 020 7031 4064Freephone number (UK only): 0800 358 1860Passcode: 714791 US Instant ReplayStart Date: 12 September 2006Delete Date: 12 October 2006Dial In Number: +1 954 334 0342Freephone number: +1 888 365 0240Passcode: 714791 Video WebcastStart Date: 12 September 2006Delete Date: 13 December 2006Archive Link: http://events.webeventservices.com/Drax/2006/09/12/ For further information please contact: On the day ThereafterDorothy Thompson, Chief ExecutiveGordon Boyd, Finance Director +44(0)207353 4200 +44(0)1757 618381 Andrew Jones, Investor Relations +44(0)207353 4200 +44(0)1757 612938Melanie Wedgbury, Media Contact +44(0)207353 4200 +44(0)1757 612438 Tulchan CommunicationsDavid Trenchard and Peter Hewer +44(0)207353 4200 Website: www.draxgroup.plc.uk Notes to Editors 1. High resolution images of Dorothy Thompson are available to download free ofcharge from www.vismedia.co.uk Chairman's Statement Drax continues to develop as a listed company with the benefit of its revisedcapital structure providing greater access to the markets in which it operates.The level of contracted power sales demonstrates that we are delivering ourstrategy and the dividends declared evidence our commitment to shareholderreturn. The six months results show the group performing well. Profitability hasincreased, our trading strategy is being implemented successfully and we areseeing the benefits of investments made to enhance trading performance andreliability. The Board of directors has declared an interim base dividend in respect of thesix months ended 30 June 2006 of 4 pence per share, being approximately £16million. As foreshadowed in our June Trading Update, and in line with our policy todistribute 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, the Board of directors has also declared a further interimdividend as a special dividend of 80 pence per share, being approximately £326million, conditional upon a share consolidation to be put to shareholders forapproval at an Extraordinary General Meeting to be held on 6 October 2006, whichaims to provide comparability of financial measures and to preserve the positionof the participants under certain of the Drax share plans. Both dividends are expected to be paid on 25 October 2006. I would like to recognise once again the continuing commitment of our employees.Over the last six months our employees have performed to the highest standardsand I would like to express my appreciation for their enthusiasm and commitmentto the Drax business. Gordon Horsfield Chairman Chief Executive's Statement Introduction The Group produced robust performance in the six months ended 30 June 2006resulting in an operating profit of £329 million and EBITDA of £239 million.Both measures show a substantial improvement on the performance in the first sixmonths of last year reflecting both improved margins and improved operatingperformance. These results have been delivered against a background where commodity marketdevelopments were driven by a progressive rise in crude oil prices. Natural gasprices were particularly high in the early part of the year, influenced by oilprices and a tighter demand/supply balance as the UK has moved to a greaterreliance on imported gas. High gas prices have meant that gas fired generationcontinued to be the principal price setting plant in the UK power market and hada strong upward influence on the power price. The price of CO2 emissionsallowances has been extremely volatile with severe market shocks in late April/early May 2006 following the publication of 2005 EU CO2 emission data whichindicated lower CO2 emissions across Europe than anticipated. During the periodthere were significant developments in the regulatory and legislative areasapplicable to Drax with the resolution of the Large Combustion Plant Directive("LCPD") elections for 2008-2015 and the publication of a new Energy Review bythe UK Government. In March 2005 we advised investors that we had identified a range of projectswhich had the potential to improve Drax's EBITDA by £30 million to £50 millionper annum by the end of 2007. Overall, good progress has been made towardsdelivering the targeted improvements, particularly in the areas which relate todelivering sustainable improvements to capturing value from our principalrevenue source of generating and trading electricity. We estimate that £25million of EBITDA realised in the six months ended 30 June 2006 is attributableto EBITDA enhancement projects, with an estimated £6 million resulting fromchanges in commodity prices. Trading Over the last 18 months we have invested in both staff and systems in thetrading and risk management areas. This will continue to be an area ofinvestment as we deliver our trading strategy with particular focus on realisingmarket or better dark green spreads and enhancing our ability to capture valuefrom plant flexibility and improved plant reliability. We have also reviewed andrevised our risk management controls and, as a result, revised our RiskManagement Policy, replacing the Trading and Risk Management Committee of theDrax Group plc Board with a Risk Management Committee of the Board of ourtrading subsidiary, Drax Power Limited. The responsibilities of the AuditCommittee of the Board of Drax Group plc include oversight of the riskmanagement arrangements for the group as a whole. Energy Sales and Contracted Position In the six months ended 30 June 2006, Drax Power made net sales of 12.4TWh(2005: 11.6TWh) of electricity at an average achieved price of £45.7 per MWh(2005: £30.1 per MWh). The average achieved price reflects the impact of powersold forward in 2004 and 2005 for delivery in 2006, as well as market pricesprevailing in the first six months of 2006, together with the net impact of thebalancing mechanism activity. Power prices rose significantly during the periodas reflected in the Drax average achieved price. Since the revised capital structure was put in place at the time of listing,Drax has capitalised on its improved credit status to implement its tradingstrategy. As at 5 September 2006 Drax had contracted power sales of 93%, 65% and52% of expected output for 2006, 2007 and 2008 respectively. Contracted powersales comprise sales where the price of power is fixed and sales where themargin is fixed but the power price may vary. Fixed price sales were 93%, 59% and 29% of expected output at an average priceof £48.1 per MWh, £50.1 per MWh and £49.7 per MWh for 2006, 2007 and 2008respectively with the balance comprising fixed margin sales. Fixed margin salesinclude sales to Centrica under the agreement announced on 11 April 2006. Thisagreement was on standard market terms to provide 600MW of baseload power for afive and a quarter year period commencing October 2007 and equates to around27.6TWh of power. It provides Drax with fixed dark green spreads consistent withDrax's trading strategy. The volume is equivalent to a load factor ofapproximately 16% for the period October 2007 to December 2012. Drax continues to execute smaller structured deals in both the season and longterm markets in line with its stated trading strategy. Market Commentary Prompt power prices were in a range of £50-60 per MWh for most of the firstquarter compared to an average of £32 per MWh in the first quarter of 2005.During March prices spiked caused by high gas prices, resulting from coldweather across Europe and the unavailability of the Rough gas storage facility.Prices fell into the summer settling in a range of £30-40 per MWh on normalsummer demand levels and adequate plant availability. In the forward power market, prices were influenced by the strong UK forward gasmarket, which was in turn influenced by continued strength in oil prices. Inlate April power prices fell following a sharp downwards adjustment in thecarbon price. Forward winter prices then drifted lower during the second quarterfollowing gas, as fears of gas supply tightness reduced. Summer forward priceshave been relatively stable through the first half. Coal prices have trended upwards during the first half. Prices have been drivenby strong worldwide demand for both coal and freight with spot API 2 rising from$54 per tonne at the beginning of the year to $63 per tonne at 30 June 2006. The price of EU carbon emissions allowances started the year in excess of €20per tonne rising to a peak of €31 per tonne in April. In late April 2006 CO2emissions data from several EU member states began to emerge that recorded alower level of EU wide emissions than anticipated by the market. This led to asharp price adjustment with prices falling to a low of €8 per tonne. Since Mayprices have stabilised somewhat settling in a range of €15-20 per tonne. The fluctuations in the three commodities described above have resulted involatility in the forward dark green spreads in the first half, but overall thespreads at 30 June 2006 finished at similar or higher levels to their openingpositions. Forward winter spreads were impacted by falling carbon prices andfalling power prices; the two effects resulting in spreads ending the half yearwhere they started. With forward summer power prices being more stable, thefalling carbon price resulted in forward summer dark green spreads rising overthe half year. Operations Health and Safety Health and safety remains our highest priority. Recordable personal injury ratescontinue to fall and the Drax performance now compares favourably with industrypractice. We believe that a strong safety culture, in addition to promoting thesafety of our workforce, has an important part to play in delivering the targetsfor plant performance. Plant Availability and Load Factor We target profitability rather than production volumes and generate electricityonly when it is profitable to do so. A key performance metric for the plant isavailability and the most important availability metric is the forced outagerate. The first half of the year saw further improvement in forced outage rateat 4.8% (2005: 6.3%) with the critical first quarter at 3.3% being comfortablyahead of our long term objective of 4.5%. The plant availability for the sixmonth period was 87.0% (2005: 88.1%) with a load factor (based on net sales) of76.0% (2005: 70.8%). Availability in the first half of the year was impacted bythe planned outage falling mostly in the second quarter of 2006 whereas the 2005planned outage was largely in the third quarter of 2005. For the eight months to31 August 2006 the forced outage rate was 5.3%. Investment As with trading, we continue to invest in people, systems, and equipment withfour main objectives in mind: to meet future environmental legislativerequirements; to facilitate fuel diversity; to improve plant reliability; and toimprove plant efficiency. Environmental On 3 February 2006, under LCPD regulations, approximately 20GW of UK coal plant''opted in'' with a further 13GW ''opted out'' and will be subject to a lifetimelimit of 20,000 operating hours from 2008. Drax ''opted in'' under the NationalEmissions Reduction Plan as we believe this will serve to retain the optionalityand flexibility of the plant and thereby the opportunity to add value. To meetthe LCPD requirements for oxides of nitrogen emissions standards we havecontinued our programme to install Boosted Over Fire Air equipment on each ofthe six units, of which three units are now complete. Fuel Diversity Fuel diversity projects include petcoke and biomass. Drax has invested inpetcoke handling and blending facilities and commenced an 18 month trial burn onone unit in June 2005. Air quality monitoring has shown that there has been nomaterial increase in pollutants measured. We expect to apply for a licence forcommercial burn to commence in 2007. Although the results from the trials areencouraging, there can be no guarantee that consent to burn petcoke in some orall of the units will be granted. Drax retains the ability to obtain value from the co-firing of biomass andenergy crops should the outcome of the consultation arising from the EnergyReview referred to below prove positive. A biomass ''Direct Injection'' systemwas installed on one unit during August 2005 and has proved to be an effectiveway of delivering larger volumes of prepared biomass to the boiler than ispossible through the coal pulverising mills. Drax has the potential to install,at modest cost, such a system on each unit should the investment be justified oneconomic grounds. In addition, consideration is being given to other biomassrelated projects including a processing plant. Reliability We have continued with our programmes of targeted improvements in forced outagerates by focusing on preventing minor predictable failures and seeking to avoidmajor failures by using historical Drax operating data together with originalequipment manufacturer and industry experience. These programmes include:improved inspection and equipment monitoring; better quality repairs; equipmentupgrades; and the improved provision of critical spares. Good progress has beenmade to date as demonstrated by the forced outage rate which remains on targetfor a long-run average of 4.5% from 2007. At the beginning of this year welaunched a comprehensive process improvement project for our maintenancemanagement systems which is already delivering early benefits in millavailability and maintenance cost management. Efficiency and CO2 Emissions Drax recognises the potential to improve operating and thermal efficiencyleading to reduced emission rates and coal costs. We continue to evaluate valueenhancing opportunities some of which may involve significant investment inexcess of the three year £100 million core capital expenditure previouslyannounced. We have committed a further £17 million to condenser and feed systemplant improvements to improve efficiency and reliability. The work will beundertaken during planned outages in 2007 and 2008 and has an expected paybackof 4 to 5 years. We are currently evaluating the feasibility of refurbishing thehigh pressure and low pressure turbines on all six generating units to improveefficiency thereby reducing the amount of coal consumed and CO2 emitted per MWh.The investment will be formally considered by the Board by the end of the yearand, if approved, is estimated to result in additional investment, which wouldbe material in the context of our current programme, over a 4 to 5 year periodcommencing in 2007. Regulatory Matters Energy Review In January 2006 the UK Government launched its Energy Review (the ''Review'').The Review findings were published in July 2006 and confirmed, amongst otherthings, that the Government believed coal to have a long term role in the UKenergy mix. The report also supported the view that co-firing should be part ofthe drive to reduce carbon emissions on a long term basis. The co-firingproposals arising from the Review are now subject to consultation. In the shortterm, the proposal for the removal of constraints on the burning of energy cropscould be effective from April 2007. In the medium term, the proposal tointroduce ''banding'' of the Renewables Obligation to provide different levelsof financial support to the different methods of renewable generation could beeffective from April 2009. Drax supports both these proposals and views thereport as positive for coal-fired generation. We look forward to working withthe UK Government on the detail. EU Emissions Trading Scheme In August 2006 the UK Government submitted its National Allocation Plan forPhase II to the EU. The proposed installation allocation for Drax is 9.6 milliontonnes per annum of EU Allowances which, if confirmed, would represent ashortfall of 11.2 million tonnes per annum assuming 2005 generation levels. Theshortfall will be covered from 4.7 million tonnes per annum to be deliveredunder the Centrica contract with the balance to be purchased in the open market.The UK NAP allows for Drax to buy 0.9 million tonnes per annum of alternativeKyoto instruments to make up part of this shortfall. The European Union is currently reviewing countries' proposals on NationalAllocation Plans with the aim (at the least) to ensure the Kyoto commitment isachieved. In Phase II each EU country will be required to place a cap on theamount of Clean Development Mechanism certificates to be used during the Phase.Whilst guidance is now available on Phase II allocations for all the majorparticipant countries in the scheme, both the supply of allowances and thepotential for using Clean Development Mechanism certificates to meet compliancewill remain uncertain until final approval of all National Allocation Plans bythe European Union. Outlook Performance in the first half of the year has been strong and Drax continues totrade in line with expectations. Against a backdrop of favourable commoditiesmarkets, we have invested, and will continue to invest, in people, systems andplant to improve on our current level of performance and to deliver shareholdervalue. We will remain active in the regulatory debate particularly with regard to theconsultation processes arising from the Energy Review. We believe coal iscritical to the UK energy mix going forward if the Government is to achieve itsobjectives of delivering security of supply, affordability and tackling climatechange, where biomass and energy crop burning with coal has much to contribute. Dorothy Thompson Chief Executive Operating and Financial Review Results of Operations For the six months ended 30 June 2006, Drax recorded an EBITDA of £239 millionand an operating profit of £329 million (£221 million excluding exceptionalitems and unrealised gains on derivative contracts). For the six months ended 30June 2005 EBITDA was £72 million and operating profit was £69 million (£54million excluding exceptional items and unrealised losses on derivativecontracts). Six months ended 30 June 2006 compared Six months endedto six month ended 30 June 2005 30 June 2006 2005 £'m £'mRevenueRevenue from generation 602.8 365.7Revenue associated with power purchases 47.2 37.9 650.0 403.6Fuel costs(1)Fuel costs in respect of generation (282.7) (226.1)Costs of power purchases (47.2) (37.9) (329.9) (264.0) Gross profit 320.1 139.6 Other operating expenses excluding depreciation, amortisation, unrealised gains/(losses) on derivativecontracts and exceptional items(2) (81.5) (67.9) EBITDA(3) 238.6 71.7 Depreciation and amortisation (17.5) (17.8)Other operating income - net exceptional credit 19.0 263.5Unrealised gains/(losses) on derivative contracts 89.1 (248.5) Operating profit 329.2 68.9 Interest payable and similar charges (18.2) (58.9)Interest receivable 5.7 2.7 Profit before tax 316.7 12.7Tax (charge)/credit (85.0) 77.1 Profit for the period attributable to equity 231.7 89.8shareholders from continuing operations (1) Fuel costs comprise the fuel costs incurred in the generation process,predominantly coal and CO2 emissions allowances, together with oil and biomass.Fuel costs also include the cost of power purchased to meet power salescommitments. (2) Other operating expenses excluding depreciation, amortisation, unrealisedgains/(losses) on derivative contracts and exceptional items principally includesalaries, maintenance costs, grid connection charges (TNUoS), balancing servicescosts (BSUoS) and business rates. (3) EBITDA is defined as profit before interest, tax, depreciation andamortisation, exceptional items and unrealised gains/losses on derivativecontracts. Drax Group's revenues from generation during the six months ended 30 June 2006were £603 million, compared to £366 million for the corresponding period in2005. This increase was mainly due to increases in average achieved electricityprices over the period (see Price of Electricity below). Net power sold in thesix months ended 30 June 2006 was 12.4TWh, compared to 11.6TWh in thecorresponding period in 2005. Included within revenues from generation arerevenues from the sale of by-products (ash and gypsum), the provision ofancillary services, and the sale of ROCs, LECs and SO2 allowances. In the periodended 30 June 2006 these revenues totalled £36 million compared with £19 millionfor the corresponding period in 2005. Drax purchases power in the market when the cost of power in the market is belowDrax's marginal costs of production in respect of power previously contracted bythe Group, and to cover any shortfall in generation. The costs of powerpurchased is treated as fuel costs, and revenue has been adjusted accordingly.The cost of purchased power increased by £9 million to £47 million for the firstsix months of 2006 compared to the corresponding period in 2005, primarily dueto the impact of higher market prices. Drax's fuel costs in respect of generation during the six months ended 30 June2006 were £283 million, compared to £226 million for the corresponding period in2005, an increase of £57 million. This increase was primarily due to increasedgeneration, the impact of higher prices for CO2 emissions allowances, and anincrease in the cost of coal and other fuels (see Price of Coal and Other Fuelsand CO2 Emissions Allowances below). Reflecting the above factors, Drax's gross profit increased from £140 millionfor the six months ended 30 June 2005 to £320 million for the six months ended30 June 2006. Drax's other operating expenses excluding depreciation, amortisation, unrealisedgains/losses on derivative contracts and exceptional items were £82 million forthe six months ended 30 June 2006, compared to £68 million for the correspondingperiod in 2005, an increase of £14 million. The increase primarily reflected thetiming of expenditure related to Drax's maintenance regime, in particularplanned outages, and higher balancing services costs (BSUoS). Drax's EBITDA (defined as profit before interest, tax, depreciation,amortisation, exceptional items and unrealised gains/losses on derivativecontracts) increased from £72 million for the six months ended 30 June 2005 to£239 million for the six months ended 30 June 2006. Exceptional operating income of £19 million for the six months ended 30 June2006 related to a further distribution received under the TXU Claim on 20 July2006. Exceptional operating income for the six months ended 30 June 2005 of £264million included credits of £19 million due to the reversal of provisionsrelating to impairment of tangible fixed assets and £256 million received underthe TXU Claim. Exceptional operating income in 2005 was partially offset by acharge for share-based payment transactions under the LTIP of £11 million.Additional information relating to these exceptional items is included in thenotes to the condensed consolidated financial statements. IAS 32 and IAS 39, the International Accounting Standards in respect ofderivatives and financial instruments, were applicable to Drax for the periodfrom 1 January 2005. As a result of applying these standards, unrealised gainsof £81 million and unrealised losses of £74 million on derivative contracts wererecognised within assets and liabilities respectively at 30 June 2006 ascompared to unrealised losses of £263 million at 30 June 2005. The unrealisedgains and losses principally relate to the mark-to-market of Drax's forwardcontracts for power yet to be delivered, and some coal contracts, which meet thedefinition of derivatives under IAS 39. For the period from 1 January 2005 to 30 June 2005, mark-to-market movements onthese contracts were reflected directly in the income statement, as appropriatehedge accounting documentation was not in place. This resulted in an expense of£249 million relating to unrealised losses on derivative contracts beingrecognised in the income statement for the six months to 30 June 2005.Subsequently, credits of £132 million and £89 million were recognised in theincome statements for the six month periods ended 31 December 2005 and 30 June2006 respectively, representing the unwind of the June 2005 position, as powerand coal was delivered in accordance with the underlying derivative contracts.From 1 July 2005, the Group put in place appropriate documentation to enable itto achieve hedge accounting for a large proportion of its commodity contracts.As a result, from 1 July 2005 mark-to-market movements on contracts consideredto be effective hedges have been recognised through the hedge reserve. Drax's operating profit increased from £69 million for the six months ended 30June 2005 to £329 million for the six months ended 30 June 2006. Interest payable and similar charges in the six months ended 30 June 2006 were£18 million, compared to £59 million for the corresponding period in 2005. Thedecrease principally reflected a reduction in interest payable on borrowings asa result of lower debt and interest rates following the Refinancing and Listing. Drax's tax charge during the six months ended 30 June 2006 was £85 million,compared to a tax credit of £77 million for the corresponding period in 2005.The tax credit in 2005 reflected the benefit of the Group's funding structureand utilisation of tax losses brought forward from earlier years, which morethan offset the current tax charge for the prior period. Although the tax chargefor 2006 also included the benefit of the Group's funding structure, tax lossesbrought forward from earlier years were exhausted during the period resulting ina higher tax charge. Reflecting the above factors, Drax's profit from continuing operations increasedfrom £90 million for the six months ended 30 June 2005 to £232 million for thesix months ended 30 June 2006. Key Factors Affecting the Business Price of Electricity The table below shows the average achieved price Drax realised for the sixmonths ended 30 June 2005 and 30 June 2006, together with the market closingprice for each season. Six months ended 30 June 2006 2005Average achieved price (£/MWh) 45.7 30.1 2006 2005Summer base load market close (£/MWh) 45.0 29.0 2005/2006 2004/2005Winter base load market close (£/MWh) 49.2 45.7 Average achieved price rose from £30.1 per MWh for the six months ended 30 June2005 to £45.7 per MWh for the six months ended 30 June 2006. Average captureprice (being the price attained prior to balancing mechanism activity) rose from£29.1 per MWh to £44.5 MWh for the respective periods. The forward baseloadpower prices for Winter 2006/07 and Summer 2007 were approximately £54.8 per MWhand £42.1 per MWh respectively as at 5 September 2006. Price of Coal and Other Fuels Drax burnt approximately 5.0 million tonnes of coal in the six months ended 30June 2006 and approximately 4.6 million tonnes during the corresponding periodin 2005. This coal was purchased from a variety of domestic and internationalsources on either fixed or variable priced contracts with different maturities.Spot prices for internationally traded coal delivered into North West Europe (asreflected by the TFS API 2 index) are volatile. For example, prices per tonnefell from US$60 at the end of June 2005 to US$54 at the end of December 2005,but then increased to US$63 at the end of June 2006. Drax also burns biomass, petcoke and fuel oil, although coal comprises more than90% of total fuel costs (excluding CO2 emissions allowances). The average costof fuel per MWh (excluding CO2 emissions allowances) for the six months ended 30June 2006 was £17.0 compared with £16.1 for the corresponding period in 2005. CO2 Emissions Allowances Drax's CO2 emissions allowances requirement for the six months ended 30 June2006, in excess of those allocated under the UK NAP, was approximately 4.0million tonnes, compared to approximately 3.5 million tonnes for thecorresponding period in 2005. During the six months ended 30 June 2006, the price for CO2 emissions allowanceshas been volatile. The price began the year at approximately €22 per tonnerising to a high of €31 per tonne in April. Towards the end of April and earlyMay the price fell dramatically, reaching a low of €8 per tonne. Since mid-Maythe price has been less volatile, generally in a range between €15 per tonne and€20 per tonne. The average price expensed by Drax for CO2 emissions allowances during the sixmonths ended 30 June 2006 was £18.2 per tonne compared with £11.7 per tonneduring the six months ended 30 June 2005. Outages and Plant Utilisation Levels Six months ended 30 June 2006 2005Forced outage rate (%) 4.8 6.3Planned outage rate (%) 8.6 6.0Total outage rate(1) (%) 13.0 11.9Availability (%) 87.0 88.1Electrical output (net sales) (TWh) 12.4 11.6Load factor (%) 76.0 70.8 (1) The forced outage rate is expressed as a percentage of planned capacityavailable (i.e. this includes a reduction for planned losses). The plannedoutage rate is expressed as a percentage of registered capacity, therefore, theaggregation of the forced outage rate and planned outage rate will not equate tothe total outage rate. Lost generation capacity in the first six months of 2006 from forced outages was0.7TWh, compared to 1.0TWh for the corresponding period in 2005, resulting in aforced outage rate of 4.8% compared to 6.3% in 2005. Management have targetedimprovements in forced outage rates by focusing on preventing minor predictablefailures and seeking to avoid major failures by using historical Drax operatingdata together with original equipment manufacturer and industry experience. Inthe six months to 30 June 2006 progress has been made in both areas and Draxmanagement believe further progress can be made and will continue the programmesto improve performance with the objective of achieving a sustainable forcedoutage rate of 4.5% by 2007. Drax's maintenance regime includes a major planned outage for each unit everyfour years. Consequently, there is an irregular pattern of planned outages andassociated expenditure, since in two of the four years, two units will undergo amajor outage. A major planned outage (unit 4) was completed mostly in the secondquarter of 2006, whereas a major planned outage (unit 6) took place largely inthe third quarter of 2005. As there are no other major planned outages scheduledfor the remainder of 2006, the full year planned outage rate is expected to beapproximately 4.6%, compared to 7.1% for the year to 31 December 2005. TXU Claim Drax received £19 million under the TXU Claim in July 2006 (which was recognisedas income in the six months ended 30 June 2006) and £55 million in January 2006(which was recognised as income in the year ended 31 December 2005), bringingthe total received to date to £330 million. All amounts are net of VAT and costsand all proceeds have been used to prepay debt secured against the claim. At the time of approving these interim financial statements the Group had afurther £6 million (including VAT) outstanding under the TXU Claim, which hasnot been recognised in the income statement at 30 June 2006. Liquidity and Capital Resources Net debt reduced to £152 million as at 30 June 2006 from £462 million as at 31December 2005. The main reasons for the reduction were the strong realised grossmargin and the receipt of distributions from the TXU Claim. Cash and cash equivalents were £298 million on 30 June 2006 compared with £88million on 31 December 2005, an increase of £210 million. The increase in cashand cash equivalents is analysed in the table below. Analysis of Cash Flows Six months ended 30 June 2006 2005 £'m £'mNet cash generated from operating activities 335 269Net cash used in investing activities (12) (12)Net cash used in financing activities (113) (217) ---------- --------Net increase in cash and cash equivalents(1) 210 40 ---------- -------- (1) For the purposes of the cash flow statements, cash and cash equivalentsexcludes amounts held in escrow and debt service reserve accounts. The movementsin these accounts are included as a component of net cash generated fromoperating activities. Net cash generated from operating activities was £335 million in the six monthsended 30 June 2006, compared to £269 million for the corresponding period in2005, an increase of £66 million. The increase reflected the impact of improvedbusiness performance, EBITDA having increased by £167 million in 2006, and areduction of £38 million in interest payments following the Refinancing andListing, offset by a reduction in cash received under the TXU Claim (£55 millioncash received under the claim in the six months ended 30 June 2006 compared to£205 million for the corresponding period in 2005). Net cash used in investing activities, which represented capital expenditure inboth periods, was flat at £12 million for the six months ended 30 June 2006 andthe corresponding period for 2005. Net cash used in financing activities was £113 million in the six months ended30 June 2006, compared to £217 million for the corresponding period in 2005. The2006 amounts included a Bridge loan prepayment of £55 million on 23 January 2006and a Term loan repayment of £58 million on 30 June 2006. The 2005 amountsincluded a prepayment of B Debt of £205 million on 15 April 2005 and aprepayment of A Debt of £12 million on 30 June 2005, both under the Group'sprevious debt facilities. The increase in cash and cash equivalents was £210 million in the six monthsended 30 June 2006, compared to £40 million for the corresponding period in2005. Drax's policy is to invest available cash in short term bank deposits. On 11 May 2006, the Group entered into a new credit facility agreement providinga further £100 million borrowing facility on similar terms and with a similarrepayment profile to the existing term borrowings. The facility was drawn downin full on 3 July 2006 and partially utilised to make a payment of £22.5 millioninto the employee pension scheme to reduce the actuarial deficit. Drax willutilise the remainder of the facility to partially fund the interim and specialdividends to be paid on 25 October 2006 (see Distribution Policy below). Seasonality of Borrowing Drax faces seasonality in its business with higher economic dispatch in thewinter period and lower economic dispatch in the summer months. Accordingly,cash flow during the summer months is materially reduced due to the combinedeffect of lower prices and output, while maintenance expenditures are increasedduring this period due to major planned outages. The Group's £100 millionrevolving credit facility will assist in managing the cash low points in thecycle where required. Capital Expenditure Capital expenditure was £12 million in both the six months ended 30 June 2006and the corresponding period in 2005. As previously announced, Drax expects toincur core capital expenditure of approximately £100 million in the plant overthe period 2006 to 2008 in support of current operations. It is also expectedthat additional expenditure will be incurred ahead of the requirements of theLarge Combustion Plant Directive from 2016. Drax also intends to evaluate otheropportunities which may result in additional expenditure (see BusinessEnhancements below). Business Enhancements Drax advised investors in March 2005 that it had identified a range of projectswhich had the potential to improve EBITDA by £30 million to £50 million perannum by the end of 2007. The projects were focused on the following areas:trading; operations (planned and forced outages); alternative fuels (petcoke);by-product sales; procurement savings; and exploiting the Drax site. Overall,good progress has been made with an estimated £25 million of EBITDA realised inthe six months ended 30 June 2006 attributable to the EBITDA enhancement project(with an estimated £6 million resulting from changes in commodity prices).Greatest progress has been made in trading, where we have invested in bothpeople and systems and have been able to take advantage of the increasingreliability of the plant. Plans to exploit the Drax site continue to progress. The results from the test burning of petcoke on one unit are encouraging.Although the price differential between petcoke and coal has narrowed since thetrial commenced (and, if sustained, will reduce the benefits from extending theburning of petcoke to the other five units, assuming consent is given by theEnvironment Agency) there remains significant benefit. To date this narrowing ofthe price differential has been more than offset by higher than planned benefitsbeing achieved elsewhere (particularly trading and plant availability). Management initiated a series of programmes at the end of 2004 aimed at reducingforced outage, with a target of achieving a forced outage rate of 4.5% by theend of 2007. Results to date have been better than expected, although until weare confident that the improvement is sustainable, we have not attributed thefull improvement in realised EBITDA enhancements against our target. We continue to evaluate other value enhancing opportunities, some of which mayinvolve significant investment in excess of the £100 million of core capitalexpenditure previously announced for the period 2006 to 2008. For example, wehave already committed a further £17 million to condenser and feed system plantimprovements to enhance efficiency and reliability. The work will be undertakenduring planned outages in 2007 and 2008 and has an expected payback of 4 to 5years. In addition, we are currently evaluating tenders from a number ofinternational turbine manufacturers to upgrade the high pressure and lowpressure turbine rotors on all six generating units to improve efficiency,thereby reducing the amount of coal consumed and CO2 emitted per MWh. It isexpected that this investment will be formally considered by the Board by theend of the year and, if approved, would result in expenditure material in thecontext of the current capital expenditure programme, spread over a 4 to 5 yearperiod commencing in 2007. Employee Share Plans On 23 May 2006, the Company issued 157,734 ordinary shares of 10 pence each inDrax Group plc at par to a trust on behalf of qualifying employees under theGroup's Share Incentive Plan. Each qualifying employee received 254 free shares,equating to a cash value of approximately £2,000 based on a price of £7.89,being the average closing price over the five dealing days immediately preceding23 May 2006. In addition, participation in three and five year Savings Related Share OptionPlans was offered to all qualifying employees. The plans commenced on 1 July2006 and are expected to result in the issue of 298,898 options to acquireordinary shares in Drax Group plc at a price of £6.36 exercisable at the end ofthree year savings contracts, and a further 600,498 options to acquire ordinaryshares in Drax Group plc at a price of £6.36 exercisable at the end of five yearsaving contracts. Contracted Position for 2006, 2007 and 2008 Since issuing a Trading Update on 30 June 2006, Drax has continued to trade inline with expectations and to follow the stated trading strategy of makingsteady forward power sales with matching carbon and coal purchases. Drax's aimis to deliver market level or better dark green spreads across all traded marketperiods and, as part of this strategy, Drax retains power to be sold into theprompt (within season) power markets. As at 5 September 2006 the contracted power sales for 2006, 2007 and 2008 wereas follows: 2006 2007 2008Output - percentage of expectedannual production hedged 93% 65% 52%comprising:- Fixed price power sales at an 93% at £48.1 59% at £50.1 29% at £49.7average achieved price per MWh- Fixed margin power sales - 6% 23% CO2 emissions allowances -percentage of expected annualrequirement (including UK NAPallocation, market purchases andstructured contracts) 93% 72% 67% Coal - percentage of expectedannual requirement hedged 100% 63% 54% Fixed margin power sales include approximately 1.3TWh in 2007 and 5.3TWh in 2008under the five and a quarter year baseload contract with Centrica whichcommences on 1 October 2007. Under this contract Drax will supply power on termswhich include Centrica paying Drax for coal, based on international coal prices,and delivering matching CO2 emissions allowances. The contract provides Draxwith a series of fixed dark green spreads. Drax expects to issue a trading update on or around 13 December 2006. Distribution Policy The Board has previously stated that Drax will pay a stable amount (£50 million)by way of ordinary dividends each year (the base dividend) subject toavailability of cash and appropriate reserves. Accordingly, on 11 September 2006the Board resolved to pay an interim dividend for the six months ended 30 June2006 of 4 pence per share (equivalent to £16 million) on 25 October 2006. Theseshares will be marked ex-interim dividend on 4 October 2006. In addition to the base dividend, the Board has also previously stated thatsubstantially all of any remaining cash flow, subject to the availability ofreserves and after making provision for debt payments, debt service requirements(if any), capital expenditure, and other expected business requirements, will bedistributed to shareholders. Accordingly, on 11 September 2006 the Boardresolved, subject to the approval by shareholders of a resolution to effect ashare consolidation to be considered at an Extraordinary General Meeting on 6October 2006, to pay a further interim dividend as a special dividend of 80pence per share (equivalent to £326 million), also on 25 October 2006. Theshares will be marked ex-special dividend on 9 October 2006. This review was approved by the Board on 11 September 2006. Gordon Boyd Finance Director Condensed Consolidated Income Statements Six months ended Year ended 30 June 31 December Notes 2006 2005 2005 (Unaudited) £'m £'m £'mContinuing operationsRevenue 650.0 403.6 928.6Fuel costs (329.9) (264.0) (539.5) Other operating expensesexcluding exceptional items (99.0) (85.7) (180.9) Other exceptional operating 5 19.0 274.8 329.9income Other exceptional operating 5 - (11.3) (66.6)expenses Total other operating (expenses) (80.0) 177.8 82.4/income Unrealised gains/(losses) onderivative contracts 89.1 (248.5) (117.0) Operating profit 329.2 68.9 354.5 Interest payable and similar (18.2) (58.9) (114.4)charges Interest receivable 5.7 2.7 23.5 Profit before tax 316.7 12.7 263.6Tax (charge)/credit 6 (85.0) 77.1 18.8 Profit for the period attributable 231.7 89.8 282.4to equity shareholders from continuing operations Earnings per share from continuingoperations expressed in pence per share- Basic 7 56.9 31.8 98.0- Diluted 56.9 31.8 98.0 The results above relate to the continuing operations of the Group. Condensed Consolidated Statement of Recognised Income and Expense Six months ended Year ended 30 June 31 December 2006 2005 2005 (Unaudited) £'m £'m £'mProfit for the period 231.7 89.8 282.4 Actuarial gains/(losses) on definedbenefit pension schemes 9.8 (0.2) (8.2) Deferred tax on actuarial (gains)/losseson defined benefit pension schemes (2.9) 0.1 2.5 Initial recognition of net mark-to-marketliability on adoption of IAS 32 and IAS 39 - (5.6) (5.6) Deferred tax recognised on adoption of IAS32 and IAS 39 - 1.7 1.7 Fair value gains/(losses) on cash flow 132.6 - (109.7)hedges Deferred tax recognised on fair value(gains)/losses on cash flow hedges (39.8) - 32.9 Net gains/(losses) not recognised inincome statement 99.7 (4.0) (86.4) Total recognised income for the periodattributable to equity shareholders 331.4 85.8 196.0 Condensed Consolidated Balance Sheets Notes As at As at 30 June 31 December 2006 2005 2005 (Unaudited) £'m £'m £'mAssetsNon-current assetsProperty, plant and equipment 1,044.5 1,051.3 1,050.5Derivative financial instruments 19.5 - 0.3 1,064.0 1,051.3 1,050.8Current assetsInventories 75.6 56.8 67.8Trade and other receivables 110.0 109.5 192.9Derivative financial instruments 61.7 0.4 7.7Cash at bank and in hand 298.2 109.7 99.1 545.5 276.4 367.5LiabilitiesCurrent liabilitiesFinancial liabilities:- Borrowings 10 25.3 51.1 101.4- Derivative financial 47.8 250.4 173.0instrumentsTrade and other payables 174.4 101.6 176.1Current tax liabilities 32.1 0.9 5.2 279.6 404.0 455.7 Net current assets/(liabilities) 265.9 (127.6) (88.2) Non-current liabilitiesFinancial liabilities:- Borrowings 10 425.3 1,015.7 460.1- Derivative financial 26.4 12.9 49.6instrumentsDeferred tax liabilities 287.2 167.8 185.3Retirement benefit obligations 35.0 36.9 44.7Other non-current liabilities 1.0 25.9 0.7Provisions 2.1 1.5 2.0 777.0 1,260.7 742.4 Net assets/(liabilities) 552.9 (337.0) 220.2 Shareholders' equityIssued equity 11 40.7 - 40.7Share premium 420.7 0.5 420.7Merger reserve 710.8 445.1 710.8Capital reserve - 293.5 -Hedge reserve 16.0 - (76.8)Retained losses (635.3) (1,076.1) (875.2) Total shareholders' equity 552.9 (337.0) 220.2 Condensed Consolidated Statement of Changes in Equity Share Share Merger Capital Hedge Retained Total capital premium reserve reserve reserve losses £'m £'m £'m £'m £'m £'m £'mAt 1 January2005 - 0.5 445.1 293.5 - (1,173.2) (434.1) Profit for theperiod - - - - - 282.4 282.4 Actuarial losseson defined benefitpension schemes - - - - - (8.2) (8.2) Deferred tax onactuarial losseson defined benefitpension schemes - - - - - 2.5 2.5 Initial recognition of net mark-to-marketliability on adoption of IAS 32 and 39 - - - - - (5.6) (5.6) Deferred taxrecognised onadoption ofIAS 32 and 39 - - - - - 1.7 1.7 Fair value losseson cash flow hedges - - - - (109.7) - (109.7) Deferred taxrecognised onfair value losseson cash flow hedges - - - - 32.9 - 32.9 Share capital issuedon Refinancingand Listing 40.7 - - - - - 40.7 Share premiumarising onRefinancingand Listing - 420.7 - - - - 420.7 Reverse acquisitionadjustments: - Share for share exchange - (0.5) (27.8) - - - (28.3) - Transfer ofcapital reserve - - 293.5 (293.5) - - - LTIP - value of services provided - - - - - 25.2 25.2 At 31 December2005 40.7 420.7 710.8 - (76.8) (875.2) 220.2 At 1 January2005 - 0.5 445.1 293.5 - (1,173.2) (434.1) Profit for theperiod - - - - - 89.8 89.8 Actuarial losses on defined benefitpension schemes - - - - - (0.2) (0.2) Deferred tax on actuarial losses ondefined benefitpension schemes - - - - - 0.1 0.1 Initial recognition of net mark-to-marketliability on adoption of IAS 32 and 39 - - - - - (5.6) (5.6) Deferred taxrecognised onadoption ofIAS 32 and 39 - - - - - 1.7 1.7 LTIP - value ofservices provided - - - - - 11.3 11.3 At 30 June 2006 - 0.5 445.1 293.5 - (1,076.1) (337.0) At 1 January2006 40.7 420.7 710.8 - (76.8) (875.2) 220.2 Profit for theperiod - - - - - 231.7 231.7 Actuarial gains on defined benefitpension schemes - - - - - 9.8 9.8 Deferred tax on actuarial gains ondefined benefitpension schemes - - - - - (2.9) (2.9) Fair value gains on cash flow hedges - - - - 132.6 - 132.6 Deferred taxrecognised onfair value gains on cash flow hedges - - - - (39.8) - (39.8) Share-based payments - value ofservices provided - - - - - 1.3 1.3 At 30 June 2006 40.7 420.7 710.8 - 16.0 (635.3) 552.9 Condensed Consolidated Cash Flow Statements Six months ended Year ended 30 June 31 December Notes 2006 2005 2005 (Unaudited) £'m £'m £'mCash generated from operations 12 338.3 320.2 462.3Income taxes received/(paid) 1.1 (1.7) (2.8)Decrease in restricted cash 11.3 5.6 26.9Interest paid on the Refinancing and Listing - - (86.2) Interest paid (20.2) (58.4) (57.5)Interest received 4.7 2.8 5.8 Net cash generated from operating 335.2 268.5 348.5activities Cash flows from investing activities Purchase of property, plant and (12.2) (12.4) (25.0)equipment Net cash used in investing (12.2) (12.4) (25.0)activities Cash flows from financing activities Repayment of borrowings (112.6) - - Repayment of borrowings prior tothe Refinancing and Listing - (216.5) (267.6) Repayment of borrowings on theRefinancing and Listing - - (582.6) Debt issued as a result of theRefinancing and Listing - - 577.0 Net cash used in financing (112.6) (216.5) (273.2)activities Net increase in cash and cash 210.4 39.6 50.3equivalents Cash and cash equivalents atbeginning of the period 87.8 37.5 37.5 Cash and cash equivalents at end ofthe period 12 298.2 77.1 87.8 Notes to the Condensed Consolidated Financial Statements 1 General Information Drax Group plc (the ''Company'') is a company incorporated in England and Walesunder the Companies Act 1985. Drax Group plc and its subsidiaries (together the''Group'') operate in the electricity generation industry within the UK. Theaddress of Drax Group plc's registered office and principal establishment isDrax Power Station, Selby, North Yorkshire, YO8 8PQ, United Kingdom. 2 Basis of Preparation The condensed consolidated financial statements have been prepared usingaccounting policies consistent with International Financial Reporting Standardsin accordance with IAS 34 ''Interim Financial Reporting''. The Refinancing and Listing of the Group, effective on 15 December 2005,resulted in the creation of a new holding company, Drax Group plc. Under IFRS 3,the insertion of Drax Group plc as the new holding company was accounted for asa reverse acquisition, whereby Drax Group Limited (being the previous Groupholding company), the legal subsidiary, acquired Drax Group plc, the legalparent company. The information for the year ended 31 December 2005 does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. A copyof the statutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on those accounts was not qualified and did notcontain statements under section 237(2) or (3) of the Companies Act 1985. The interim financial statements were approved by the Board of directors on 11September 2006. 3 Significant Accounting Policies The accounting policies adopted are consistent with those followed in thepreparation of the Group's annual financial statements for the year ended 31December 2005. The Group does not expect any significant changes in accountingpolicies in the remainder of 2006. 4 Segmental Reporting Turnover comprises primarily sales of electricity generated by the Group to theelectricity wholesale market in England and Wales. As such, the Group has onlyone business segment and one geographical segment. 5 Other Exceptional Operating Income and Expenses Six months ended Year ended 30 June 31 December 2006 2005 2005 (Unaudited) £'m £'m £'mOther exceptional operating income:Distributions under the TXU Claim receivedin:-March 2005 - 204.7 204.7-August 2005 - 51.1 51.1-January 2006 - - 55.1-July 2006 19.0 - - Reversal of impairment of tangible fixedassets - 19.0 19.0 Total other exceptional operating income 19.0 274.8 329.9 Other exceptional operating expenses:LTIP expenses arising on share-basedtransactions - (11.3) (32.9) LTIP expenses arising on cash-basedtransactions - - (4.7) Refinancing and Listing fees and expenses - - (29.0) Total other exceptional operating expenses - (11.3) (66.6) Distributions under the TXU Claim The Group received £19.0 million under the TXU Claim in July 2006 (which wasrecognised as income in the six months ended 30 June 2006) and £55.1 million inJanuary 2006 (which was recognised as income in the year ended 31 December2005), bringing the total received to date to £329.9 million. All amounts arenet of VAT and costs and all proceeds have been used to prepay debt securedagainst the claim. At the time of approving the condensed consolidated financial statements theGroup had a further £6.4 million (including VAT) outstanding under the TXUClaim. The directors have reasonable expectations that the Group will receiverepayment of this amount broadly in full by mid-2007. However, due to thecontingent nature of insolvency proceedings, there remains uncertainty over thetiming and amount of further distributions to be determined by the TXUSupervisors, and consequently these further amounts have not been recognised inthe income statement at 30 June 2006. Reversal of impairment of tangible fixed assets In accordance with IAS 36, the Group assessed at each reporting date whetherthere was any indication that impairment losses recognised during the year to 31December 2002, following the loss of the TXU Contract, should be reversed. As aresult of the assessment performed at 30 June 2005 for the purposes of thefinancial information prepared in connection with the Refinancing and Listing,the Group recorded a reversal of tangible fixed asset impairment of £19.0million (£13.3 million net of tax). This represents a reversal of the totalimpairment loss recognised in respect of tangible fixed assets at 31 December2002 after adjusting for depreciation. Refinancing and Listing fees and expenses The total costs of the Refinancing and Listing amounted to £44.7 million. £29.0million (£20.3 million net of tax) of these costs were included within otherexceptional operating expenses in the income statement for the year ended 31December 2005. The remaining £15.7 million was deducted from debt and is beingamortised to interest payable over the duration of the Group's new debtfacilities. LTIP expenses arising on share and cash-based transactions The LTIP expense arising from share-based payment transactions was determinedbased on the Group's estimate of the market value of the shares included in thescheme. This was charged in full following vesting of the awards on Refinancingand Listing on 15 December 2005. The LTIP expense arising from cash-based payment transactions reflected theexpected total cash cost of the scheme. This was charged in full followingvesting of the awards on Refinancing and Listing on 15 December 2005. 6 Taxation The income tax expense reflects the estimated effective rate on profit beforetaxation for the Group for the year ending 31 December 2006 and the movement inthe deferred tax balance in the period so far as it relates to items recognisedin the income statement. Six months ended Year ended 30 June 31 December 2006 2005 2005 (Unaudited) 'm £'m £'mTax (charge)/credit comprises:Current tax (25.8) - (5.5)Deferred tax (59.2) 77.1 24.3 (85.0) 77.1 18.8 7 Earnings Per Share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary sharesoutstanding during the period. The calculation of weighted average number ofordinary shares outstanding assumes that the ordinary shares in Drax Group plcissued to the existing shareholders of Drax Group Limited on Refinancing andListing were in issue either at 1 January 2005 (to the extent that the relatedDrax Group Limited shares were in issue at 1 January 2005), or from the date ofissue of Drax Group Limited shares (to the extent that the related Drax GroupLimited shares were issued after 1 January 2005). Reconciliations of the earnings and weighted average number of shares used inthe calculation are set out below. Six months ended Year ended 30 June 31 December 2006 2005 2005 (Unaudited) Earnings:Earnings attributable to equity holders ofthe Company for the purposes of basic and diluted earnings (£'m) 231.7 89.8 282.4 Six months ended Year ended 30 June 31 December 2006 2005 2005 (Unaudited) Number of shares:Weighted average number of ordinary sharesfor the purposes of basic earnings per share (millions) 407.0 282.8 288.2 Effect of dilutive potential ordinary shares - - -under share options Weighted average number of ordinary shares for the purposes of diluted earnings per share (millions) 407.0 282.8 288.2 Outstanding share options in relation to the Group's Savings Related ShareOption Plans have been considered in calculating the diluted weighted averageshare capital as at 30 June 2006. 8 Dividends On 11 September 2006 the Board resolved to pay an interim dividend for the sixmonths ended 30 June 2006 of 4 pence per share on 25 October 2006. Also on 11September 2006 the Board resolved, subject to the approval by shareholders of aresolution to effect a share consolidation to be considered at an ExtraordinaryGeneral Meeting on 6 October 2006, to pay a further interim dividend as aspecial dividend of 80 pence per share, also on 25 October 2006. The interim dividend of 4 pence per share and special dividend of 80 pence pershare have not been included as liabilities as at 30 June 2006. No dividendswere proposed in respect of the year ended 31 December 2005. 9 Pension The most recent actuarial valuation of the approved defined benefit schemeoperated on behalf of the Drax Power Group of the Electricity Supply PensionScheme was updated as at 30 June 2006 to reflect relevant changes inassumptions. The principal change from those assumptions adopted at 31 December2005 was a change in the discount rate from 4.7% to 5.2% reflecting marketconditions at that date. 10 Financial Liabilities - Borrowings As at As at 30 June 31 December 2006 2005 2005 (Unaudited) £'m £'m £'mCurrent:Term loan 6.3 - 46.3Bridge loan 19.0 - 55.1B Facility Debt - 51.1 - 25.3 51.1 101.4 As at As at 30 June 31 December 2006 2005 2005 (Unaudited) £'m £'m £'mNon-current:Term loan 422.4 - 438.2Bridge loan 2.9 - 21.9A Facility Debt - 933.3 -B Facility Debt - 82.4 - 425.3 1,015.7 460.1 Payment profiles for repayment of the Term loan are based on the fixed minimumrepayment profile. Repayments above the fixed minimum repayment profile arepermitted subject to the amount of cash available for debt service. £57.5million of the Term loan was repaid on 30 June 2006 in line with the targetrepayment profile as a result of the levels of cash available for debt service. The Bridge loan has a first priority over the TXU Claim and the proceedsthereof, which are its primary source of repayment. Following a thirddistribution under the TXU Claim on 19 January 2006, £55.1 million of the Bridgeloan was repaid on 23 January 2006. The distribution was recognised as income inthe year ended 31 December 2005. Following a fourth distribution on 20 July2006, £19.0 million of the Bridge loan was repaid on 25 July 2006. The fourthdistribution was recognised as income in the six months ended 30 June 2006. On 11 May 2006, the Group entered in to a new credit facility agreementproviding a further £100 million borrowing facility on similar terms and with asimilar repayment profile to the existing borrowings. The facility was drawndown in full on 3 July 2006 and partially utilised to make a payment of £22.5million into the employee pension scheme to reduce the actuarial deficit. TheGroup expects to utilise the remainder of the facility to partially fund theinterim and special dividends to be paid on 25 October 2006 (note 8). 11 Called up Share Capital As at As at 30 June 31 December 2006 2005 2005 (Unaudited) £'m £'m £'mAuthorised:1,000,000,000 ordinary shares of 0.001 pence each - - -999,500,020 ordinary shares of £0.10 each 100.0 - 100.0 Issued and fully paid:30 June 2005-94,254,480 ordinary shares of 0.001 pence each - - - 31 December 2005-406,927,661 ordinary shares of£0.10 each - - 40.7 30 June 2006-407,085,395 ordinary shares of £0.10 each 40.7 - - 40.7 - 40.7 Under IFRS 3, the insertion of Drax Group plc as the new holding company onRefinancing and Listing was accounted for as a reverse acquisition, whereby DraxGroup Limited (being the previous holding company), the legal subsidiary,acquired Drax Group plc, the legal parent company. Therefore, the share capitalin the condensed consolidated balance sheet at 30 June 2005 reflected that ofDrax Group Limited prior to the reverse acquisition. On 23 May 2006, the Company issued 157,734 ordinary shares of 10 pence each inDrax Group plc at par to a trust on behalf of qualifying employees under theShare Incentive Plan. Each qualifying employee received 254 free shares,equating to a cash value of approximately £2,000 each based on a price of £7.89,being the average closing price over the five dealing days immediately preceding23 May 2006. 12 Cash Flow from Operating Activities Six months ended Year ended 30 June 31 DecemberContinuing operations 2006 2005 2005 (Unaudited) £'m £'m £'mProfit for the period 231.7 89.8 282.4 Adjustments for:Interest payable and similar charges 18.2 58.9 114.4Interest receivable (5.7) (2.7) (23.5)Tax charge/(credit) 85.0 (77.1) (18.8)Depreciation 17.5 15.8 31.0Reversal of impairment of tangible fixed assets - (19.0) (19.0)Loss on disposal of property, plant and equipment - 2.0 0.2Unrealised (gains)/losses on derivative contracts (89.1) 248.5 117.0Credit to equity for share-based payments 1.3 11.3 25.2Operating cash flows before movement in working capital 258.9 327.5 508.9 Changes in working capital:Increase in inventories (6.2) (11.6) (22.6)Decrease/(increase) in receivables 83.9 (40.0) (123.4)Increase in payables 1.5 43.1 99.8Increase in pensions 0.1 0.2 -Increase/(decrease) in provisions 0.1 1.0 (0.4) Cash generated from operations 338.3 320.2 462.3 Cash and cash equivalents includes the following for the purposes of the cashflow statement: As at As at 30 June 31 December 2006 2005 2005 (Unaudited) £'m £'m £'mCash and cash equivalents:Cash at bank and in hand 298.2 109.7 99.1Less: debt service reserve and escrow accounts - (32.6) (11.3) 298.2 77.1 87.8 Independent Review Report to Drax Group plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2006 which comprises the condensed consolidatedincome statements, the condensed consolidated balance sheets, the condensedconsolidated statement of total recognised income and expense, the condensedconsolidated statement of changes in equity, the condensed consolidated cashflow statements and related notes 1 to 12. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority and the requirements of IAS 34 whichrequire that the accounting policies and presentation applied to the interimfigures are consistent with those applied in preparing the preceding annualaccounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. Deloitte & Touche LLP Chartered AccountantsLondon11 September 2006 GlossaryAvailability Average percentage of time the units were available for generation. Average Power revenues divided by volume of net sales.achievedprice Average Revenue derived from bilateral contracts divided by volume of netcapture merchant sales.price Bilateral Revenue resulting from bilateral contract and power exchangecontracts trades. Balancing Income or expense resulting from accepted bids and offers in themechanism balancing mechanism.income/expense Dark green The difference between the price available in the market for salesspread of electricity and the marginal cost of production (being the cost of coal and other fuels including CO2 emissions allowances.) EU ETS EU Emissions Trading Scheme; establishing a scheme for greenhouse gas emission allowance trading within the EU. Forced Average percentage of time the units were not available foroutage rate generation at full capacity due to an unplanned failure or conditions requiring the unit to be removed from service. IAS International Accounting Standards. IFRS International Financial Reporting Standards. Load factor Percentage of actual net sales to potential maximum net generation. LTIP The Drax Group Limited Long Term Incentive Plan. Net Net volumes attributable to accepted bids and offers in thebalancing balancing mechanism.mechanism Net merchant Net volumes attributable to bilateral contract and power exchangesales trades. Net sales The aggregate of net merchant sales and net balancing mechanism. Planned Percentage of planned outages to maximum generation.outage rate Power The aggregate of bilateral contracts and balancing mechanism incomerevenues /expense. Refinancing The financial restructuring of the Group effective on 15 Decemberand Listing 2005 resulting in the creation of a new holding company, Drax Group plc. Pursuant to the schemes of arrangement under which the Refinancing and Listing was implemented, the existing debt of the Group was settled partially through the issue of new debt and partially through the issue of ordinary shares in Drax Group plc. Also on 15 December 2005, Drax Group plc was introduced to the Official List of the UK Listing Authority and its ordinary shares commenced trading on the London Stock Exchange. Summer base Market price on the last day that the season was traded as aload market product.close The Company Drax Group plc. The Group Drax Group plc and its subsidiaries. TXU TXU Europe Energy Trading Limited (in administration and subject to a company voluntary arrangement). TXU Claim The claim issued by the Group, ultimately agreed by the Administrators of TXU at approximately £348 million (including VAT) in respect of unpaid power purchased by TXU and liquidated damages under the TXU Contract. TXU Contract A 15-year power purchase agreement with TXU. UK NAP UK National Allocation Plan. Winter base Market price on the last day that the season was traded as aload market product.close Shareholder Information Registered Office and Trading AddressDrax Power StationPO Box 3, Selby, North Yorkshire YO8 8PQ Registration DetailsRegistered in England and WalesCompany Number: 5562053 Company Website www.draxgroup.plc.uk Financial Calendar At the date of publication of this document, the following are the proposed keydates in the 2006 financial calendar and outline dates for 2007: 20064 October Existing ordinary shares marked ex-interim dividend6 October Record date for interim dividend, special dividend and share consolidation6 October Extraordinary General Meeting9 October Existing ordinary shares marked ex-special dividend and admission of new ordinary shares25 October Payment date for interim dividend and special dividend13 December Trading update31 December Financial year end 2007March Preliminary results announcementLate April Annual General Meeting30 June Financial half year end Other significant dates, or amendments to the proposed dates above, will beposted on the Company's website as and when they become available. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Drax