Profits plummeted at UK power generator Drax as average power prices fell, thanks to a global gas glut and the high availability of nuclear capacity. These effects were partially offset by lower fuel and carbon costs as electricity demand dipped.
The group describes near-term commodity market conditions as "challenging", but is over 90 per cent hedged for the current year, and over 80 per cent hedged for 2010 at better margins. This underpins cash flows and profitability in advance of an improving margin outlook in 2011 and beyond.
Following a downgrading of its debt rating by Standard & Poor's, the group undertook to refinance in order to protect its investment-grade rating (although chief executive Dorothy Thompson asserts there has been no adverse reaction from trading counterparties). Drax paid down debt using proceeds from the £107m placing in June and has also completed a £235m debt refinancing.
In conjunction with Siemens Project Ventures, Drax intends to build, own and operate three biomass-fired power plants at a total capital cost of around £2bn. The investment in biomass will require dividends to be restricted to 50 per cent of underlying earnings each year.
Prior to these results, brokers were expecting full-year 2009 pre-tax profits of £251m and EPS of 52.4p (£446m and 64.2p in 2008).
| DRAX GROUP (DRX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 428p | MARKET VALUE: | £1.56bn | |
| TOUCH: | 428-429p | 12-MONTH HIGH: | 850p | LOW: 394p |
| DIVIDEND YIELD: | 9.9% | PE RATIO: | 6 | |
| NET ASSET VALUE: | 253p | NET DEBT: | 18% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 802 | 150 | 35.0 | 5.00 |
| 2009 | 707 | 33.8 | 7.00 | 4.10 |
| % change | -12 | -77 | -80 | -18 |
Ex-div:16 Sep Payment: 7 Oct | ||||
