BURNING ISSUE
Power group on track despite tough quarter
Drax suffers £25m hit on earnings after outages at power plants
POWER PRODUCER Drax Group reported a 16 per cent fall in half year earnings after two outages hit electricity generation at its power plants.
The North Yorkshire firm said a fire at its biomass rail unloading facilities at the end of 2017 restricted biomass operations in early January 2018. The firm also suffered a generator outage on one of its biomass units in February, with the unit returning to service in March.
Andy Koss, chief executive of Drax Power, said: “We had a small fire at the biomass handling facilities. We had to take down that area of the plant. We had enough biomass to fuel one unit and the other two units were down. They are up and running again.”
He said the fire was caused by mechanical equipment rubbing against a baring which created some heat.
“It was a very isolated incident and we dealt with it very quickly. It was a very self contained event. While very disappointing, it barely lasted a second and didn’t spread,” he added.
He said the second outage was a generation issue on one of the biomass units.
“It was a challenging first quarter, but in the second quarter, biomass availability was very good. We expect to meet full-year forecasts,” he said.
Analysts have pencilled in full year earnings of £250m.
Earnings before interest, tax, depreciation and amortisation (EBITDA) fell to £102m in the six months to June 30, 16 per cent down on the same period in 2017.
Mr Koss said the two outages produced a £25m hit on earnings in the first half of 2018.
Drax, which generates about 6 per cent of Britain’s electricity, has converted three of its former coal-fired plants to biomass wood pellets.
The group was due to set up a fourth biomass conversion unit by the end of the year, but Mr Koss said it will hopefully be up and running before then.
“Conversion works are ongoing and we should be ready to go in the fourth quarter – in time for the winter,” he said.
Will Gardiner, Drax chief executive, said: “We remain focused on safe and efficient operations and returns to shareholders and expect to declare a full-year dividend of £56m for 2018.”
Mr Koss said the dividend shows the group’s confidence in the future.
“We have good cash generation and where we have surplus cash, we said we’d return it to shareholders,” he said.
Analysts at Jefferies said the results were in line with expectations, but that the dividend offering was slightly higher than consensus forecasts.
Drax expects to benefit from higher power prices going forward.
Average British wholesale power prices in the first half of 2018 were around 20 per cent higher than in the first half of 2017.
Overall electricity output was down by 17 per cent compared with the first half of 2017, to 8.9 terawatt hours (TWh).
Mr Gardiner said: “We made excellent progress with our Pellet Production business, driving down costs while producing at record levels and our B2B Energy Supply business continues to increase customer numbers.
“We also remain on track with our investment projects: the conversion of a fourth unit to biomass, and the development of our OCGT and coal-to-gas repowering options.”
It was a very isolated incident and we dealt with it very quickly.
Andy Koss, chief executive of Drax