Drax delivers a robust first half performance despite lockdown hit
The firm, which owns the Selby power station in North Yorkshire, said earnings rose 30 per cent to £179m in the six months to June 30. This includes an estimated £44m hit from Covid-19, principally from small to medium sized businesses, which suffered during lockdown.
Will Gardiner, CEO of Drax Group, said there was a significant increase in earnings in the general business despite the lockdown.
The firm reported a strong biomass performance in both pellet production and generation with strong cash generation and a robust balance sheet.
It expects to pay out a full year dividend of 17.1p per share, a rise of 7.5 per cent, subject to good operational performance and the impact of Covid-19 being in line with current expectations. An interim dividend of 6.8p per share will be paid, up from 6.4p per share in the first half of 2019.
Mr Gardiner said: “We are confident in our overall business model. We have worked our way through the crisis.”
Drax said its biomass supply saw a 9 per cent reduction in costs, a 15 per cent increase in production and improved quality.
The power station supplies 11 per cent of the UK’s renewable electricity.
However, lockdown resulted in a lower demand from customers and an increase in bad debt provisions, principally in small to medium sized businesses.
Mr Gardiner said: “Our customer base is all business and there was a significant reduction in demand. There is an expectation there will be more bad debt.”
Drax said it is progressing plans to create a long term future for sustainable biomass. It is targeting five million tonnes of self-supply at £50/MWh by 2027 from expanded sources of sustainable biomass. The plan is to end its coal operations and reduce carbon dioxide emissions.
Full year earnings are expected to include a £60m hit from Covid-19, in line with the market consensus.
Mr Gardiner said: “With these robust half-year results, Drax is delivering for shareholders with an increased dividend while continuing to support our employees, communities and customers during the Covid-19 crisis.
“As well as generating the flexible, reliable and renewable electricity the UK economy needs, we’re delivering against our strategy to reduce the costs of our sustainable biomass and we’re continuing to make progress pioneering world leading bioenergy with carbon capture technologies, known as BECCS, to deliver negative emissions and help the UK meet its 2050 net zero carbon target.
“National Grid stated this week that the UK can’t reach net zero by 2050 without negative emissions from bioenergy with carbon capture and storage. BECCS delivers for the environment and also provides an opportunity to create jobs and clean economic growth in the North and around the country.”
Drax said it has expanded capacity in pellet production, whilst improving the quality and reducing the cost, which fell 9 per cent.
In power production, the group saw a limited impact from Covid-19. It said a strong contracted position provided protection from lower demand.
Drax said a business continuity plan was put in place to ensure safe and uninterrupted operations. It also implemented working from home procedures to allow safe and continuous operations and to provide customer support.
Coal made up just 10 per cent of Drax’s output in the first half of 2020.