TIDMDRX
RNS Number : 7781Q
Drax Group PLC
23 February 2023
23 February 2023
DRAX GROUP PLC (Symbol: DRX)
FULL YEAR RESULTS FOR THE TWELVE MONTHSED 31 DECEMBER 2022
Strong performance, supporting security of supply, developing a
pipeline of projects for carbon removals
Twelve months ended 31 December 2022 2021
Key financial performance
measures
Adjusted EBITDA (GBP million)(1)(2) 731 398
Net debt (GBP million)(3 () 1,206 1,108
Net debt to Adjusted EBITDA 1.6x 2.8x
Adjusted basic EPS (pence)(1) 85.1 26.5
Total dividend (pence per share) 21.0 18.8
Total financial performance
measures from continuing operations
Operating profit (GBP million) 146 197
Profit before tax (GBP million) 78 122
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Will Gardiner, CEO of Drax Group, said: "Drax delivered a strong
performance in 2022, and played a significant role in ensuring
security of supply during a challenging year for the UK's energy
system.
"Our renewable generation - biomass, hydro and pumped storage -
are a major source of power in the UK and during periods of peak
demand when there was low wind and solar power, these assets
collectively supplied up to 70% of the UK's renewable power in
certain periods.
"We believe that BECCS can become a world-leading solution for
large-scale high-quality carbon removals and we are seeing
increasing global policy support for its delivery.
"Drax stands ready to invest billions of pounds in the
development of this technology and, following the introduction of
the US Inflation Reduction Act, we are increasingly excited about
the opportunities to deploy BECCS in the US. In response, the UK
Government should accelerate its policy support for BECCS to make
the UK a world leader in carbon removals, while attracting
investment and delivering its net zero targets.
"Drax is a growing international business with strong cash
returns which we are reinvesting to produce more renewable energy
and deliver carbon removals while reducing our own carbon
emissions. We aim to be at the heart of the energy transition,
creating the jobs, renewable power and large-scale carbon removals
that the world needs."
Financial highlights - strong financial performance underpinning
investment and a sustainable and growing dividend
-- Adjusted EBITDA of GBP731 million up 84% (2021: GBP398 million)
-- Strong liquidity and balance sheet - GBP698 million of cash
and committed facilities at 31 December 2022
- 1.6x Net debt to Adjusted EBITDA - significantly below 2x
target
-- Total dividend increased 11.7% to 21.0 pence per share (2021: 18.8 pence per share)
- Proposed final dividend of 12.6 pence per share (2021: 11.3
pence per share)
Operational highlights - optimisation of supply chain and
generation to support security of supply
-- UK's largest source of renewable power by output - 11% of
annualised total, 19% of peak (up to 70% in-day peak)
Strategy highlights - developing a pipeline for carbon removals,
biomass and dispatchable, renewable power
-- Ambition to be a global leader in carbon removals
- Global BECCS - developing a pipeline of projects in the US
targeting long-term large-scale carbon removal
- First new-build site chosen, with over 10 sites currently
under evaluation
- MoU agreed with large timberland owner to develop a pipeline
of BECCS opportunities
- MoU agreed with Respira for sale of 2Mt of carbon removals
from new-build BECCS plants
- UK BECCS - UK Government to confirm shortlisting for "Track 1"
UK BECCS projects
-- Ambition to be a global leader in sustainable biomass -
targeting 8Mt of capacity and 4Mt of third-party sales by 2030
- Addition of 0.5Mt of operational pellet production capacity
and final investment decision (FID) on 0.6Mt in 2023
-- Ambition to be a UK leader in dispatchable, renewable power
- Aim to reach agreement regarding long-term incentives for
biomass generation not operating as BECCS
- Planning application submitted for 600MW expansion of Cruachan
and connection agreement secured
Future positive - climate, nature, people
-- Exiting gas sales on Customers SME business
-- Drax Power Station sustainability sourcing requirements are
compliant with UK law on sustainable sourcing
-- Biomass produced using material from well-established
forestry markets in the US, Canada and Europe
-- Subject to national and regional regulation and typically
supported by, and independently monitored for compliance by, forest
certification schemes such as: the Forestry Stewardship Council(R)
(FSC)(4) , Sustainable Forestry Initiative (SFI) and Programme for
the Endorsement of Forest Certification(c) (PEFC)(5)
-- Launch of Drax Foundation to deliver community initiatives
that support education and skills development in Science,
Technology, Engineering and Maths (STEM), and that improve green
spaces and enhance biodiversity within local communities
Operational review
Pellet Production - increased production, flexible operations to
support UK generation, addition of 0.5Mt of capacity
-- Adjusted EBITDA up 56% to GBP134 million (2021: GBP86 million)
- Production up 26% to 3.9Mt (2021: 3.1Mt, including Pinnacle
since 13 April 2021)
- Lower than planned production - delays achieving full
production at new plants, North American rail restrictions and
flexible production
-- Optimisation of supply chain supports value for the Group
- Flexible production to support generation
- Sales to third parties under long-term contracts
- Spot sales and purchases
-- Addition of c.0.5Mt of production capacity - Demopolis, Leola and Russellville - completing commissioning and acquisition of Princeton
-- 6% year-on-year production cost increase to $152/t(6) (2021: $143/t(6) )
- Inflation impact on utility costs (>35%) and fuel
surcharges (barge and rail transport to port (>20%))
-- Outlook - clear pathway to improved earnings profile
- Incremental production at existing sites and addition of new
capacity
- Continued headwind from inflation in 2023
- Development and introduction of new technologies and
innovation, including c.GBP10 million R&D investment in a
biomass sugar extraction plant
- Increased use of residuals and a wider range of sustainable
biomass materials
Generation - flexible operations and dispatch to capture value -
increased system support and security of supply
-- Adjusted EBITDA GBP696 million up 87% (2021: GBP372 million)
- Optimisation of generation and logistics to support UK
security of supply at times of higher demand
- Summer - lower power demand, lower power generation and sale
of reprofiled biomass
- Winter - maximise biomass deliveries to support increased
generation at times of higher demand
- Higher biomass and system costs reflecting a more challenging
energy environment
-- Strong pumped storage and hydro performance - value from
increased system support activity and generation
-- Six-month extension of coal at request of UK Government -
winter contingency contract for security of supply
- Units not called other than for testing
- Closure of coal units in March 2023 following expiration of
current agreement
-- As at 17 February 2023, Drax had 23.3TWh of power hedged
between 2023 and 2025 on its ROC and hydro generation assets at an
average price of GBP152.8/MWh, inclusive of equivalent gas sales
(transacted for the purpose of accessing additional liquidity for
forward sales from ROC units and highly correlated to forward power
prices) and the cost of unwinding equivalent gas sales. Excludes
any sales under the CfD mechanism.
Contracted power sales as at 17
February 2023 2023 2024 2025
------------------------------------------ ------- ------ ------
Net ROC, hydro and gas (TWh) (7/8/9) 12.4 9.0 1.9
- Average achieved GBP per MWh 158.1 149.2 135.7
Lower expected level of ROC generation in 2023 due to major
planned outages on two units
Customers - renewable power under long-term contracts to
high-quality I&C customers and decarbonisation products
-- Adjusted EBITDA of GBP26 million (2021: GBP6 million) -
continued improvement in profitability post impact of Covid-19
-- Continued development of Industrial & Commercial (I&C) portfolio
- 14.8TWh of power sales - 24% increase compared to 2021
(11.9TWh)
- Commencement of new supply contracts to three major
high-quality customers supporting generation route to market
Other financial information
Profits
-- Total operating profit from continuing operations of GBP146
million (2021: GBP197 million), including GBP298 million
mark-to-market loss on derivative contracts and GBP25 million of
exceptional costs
-- Total profit after tax of GBP83 million (2021: GBP55 million
profit after tax from continuing operations, including a GBP49
million non-cash charge from revaluing deferred tax balances)
-- Depreciation, amortisation, impairment, loss on disposal and
exceptional items of GBP286 million (2021: GBP209 million) reflects
inclusion of Pinnacle for a full 12 months, plant upgrades and
accelerated depreciation of certain pellet plant equipment in line
with planned capital upgrades and asset impairment of GBP17
million
Capital investment
-- 2022 capital investment of GBP255 million (2021: GBP238
million) - includes c.GBP90 million from OCGT projects
-- 2023 expected capital investment of GBP570 - GBP630 million
- GBP120 million maintenance, including two major planned
outages on biomass units; GBP30 million enhancements; GBP430
million strategic - includes >GBP200 million OCGT and >GBP100
million pellet plant developments
Cash and interest
-- Group cost of debt below 4.2%
-- Cash Generated from Operations GBP320 million (2021: GBP354
million), inclusive of collateral payments (2021: GBP168 million
inflow) typically associated with higher commodity prices and
expected to unwind through 2023 and 2024
- GBP234 million of collateral placed in 2022 (2021: GBP173
million held)
-- Net debt of GBP1,206 million (31 December 2021: GBP1,108
million), including cash and cash equivalents of GBP238 million (31
December 2021: GBP317 million)
- 1.6x Net debt to Adjusted EBITDA, inclusive of temporary
collateral outflows - significantly below 2x target
- 1.3x Net debt to Adjusted EBITDA, excluding collateral
Capital allocation policy - unchanged
-- Maintain a strong balance sheet
-- Invest in the core business and strategy, including new
biomass pellet plants, the development of options for BECCS, and
the expansion of pumped storage power station at Cruachan
-- Pay a sustainable and growing dividend
-- Return surplus capital to shareholders - if there is a
build-up of capital, the Board will consider the most
appropriate mechanism to return this to shareholders
- Considerations include - timing of capital deployment,
leverage profile, prevention of dilution and
divestment of non-core assets
2023 financial and operational outlook
-- Continued optimisation of biomass supply chain and generation to create value for the Group
-- Baseload ROC generation, plus two planned major outages
-- CfD unit held in reserve - operation subject to good ROC unit
operational performance and market conditions
-- Biomass generation cost >GBP100/MWh
-- Forward selling of pumped storage and hydro underpins expectations
-- Electricity Generator Levy applicable to ROC and hydro
assets, but not pumped storage, CfD or coal
Notes:
(1) Financial performance measures prefixed with "Adjusted" are
stated after adjusting for one-off exceptional items that, by their
nature, do not reflect the trading performance of the Group
(revaluation of deferred tax balances reflecting future increases
in UK corporation tax rates, acquisition costs, gain on sale of
Combined Cycle Gas Turbine generation assets, restructuring costs,
debt restructuring costs and certain asset obsolescence charges and
impairments), and certain remeasurements on derivative contracts.
Adjusted EBITDA and EPS measures exclude amounts attributable to
non-controlling interests.
(2) Earnings before interest, tax, depreciation, amortisation,
gains or losses on disposal of assets and impairment of non-current
assets, excluding the impact of exceptional items and certain
remeasurements, earnings from associates and earnings attributable
to non-controlling interests.
(3) Borrowings including the impact of hedging instruments less
cash and cash equivalents, excluding amounts attributable to
non-controlling interests.
(4) FSC (R) license code: FSC C119787.
(5) PEFC (c) Chain of Custody certification (PEFC/16-37-1769).
(6) Total $/t cost of production in Pellet Production - raw
fibre, processing into a wood pellet, delivery to Drax port
facilities in US and Canada, loading to vessel for shipment and
overheads - Free on Board (FOB). Cost of ocean freight, UK port and
rail cost reflected in Generation business accounts in addition to
price paid to Pellet Production for the biomass pellet.
(7) Includes structured power sales in 2023 and 2024 (forward
gas sales as a proxy for forward power), transacted for the purpose
of
accessing additional liquidity for forward sales from ROC units
and highly correlated to forward power prices. 2024: 1.5TWh,
2025: 0.3TWh, presented net of cost of closing out gas positions
at maturity and replacing with forward power sales.
(8) Typical estimated annual biomass generation from ROC and CfD
units c.13-14TWh based on estimated biomass availability,
incrementally lower in 2023 due to major planned outages on two
ROC units, expected to result in lower ROC cap versus 2022.
(9) 2023 includes forward selling of pumped storage generation
(0.1TWh) resulting in higher captured prices but lower system
support availability.
Forward Looking Statements
This announcement may contain certain statements, expectations,
statistics, projections and other information that are, or may be,
forward-looking. The accuracy and completeness of all such
statements, including, without limitation, statements regarding the
future financial position, strategy, projected costs, plans,
beliefs, and objectives for the management of future operations of
Drax Group plc ("Drax") and its subsidiaries (the "Group"), are not
warranted or guaranteed. By their nature, forward-looking
statements involve risk and uncertainty because they relate to
events and depend on circumstances that may occur in the future.
Although Drax believes that the statements, expectations,
statistics and projections and other information reflected in such
statements are reasonable, they reflect the Company's current view
and no assurance can be given that they will prove to be correct.
Such events and statements involve risks and uncertainties. Actual
results and outcomes may differ materially from those expressed or
implied by those forward-looking statements. There are a number of
factors, many of which are beyond the control of the Group, which
could cause actual results and developments to differ materially
from those expressed or implied by such forward-looking statements.
These include, but are not limited to, factors such as: future
revenues being lower than expected; increasing competitive
pressures in the industry; uncertainty as to future investment and
support achieved in enabling the realisation of strategic aims and
objectives; and/or general economic conditions or conditions
affecting the relevant industry, both domestically and
internationally, being less favourable than expected, including the
impact of prevailing economic and political uncertainty. We do not
intend to publicly update or revise these projections or other
forward-looking statements to reflect events or circumstances after
the date hereof, and we do not assume any responsibility for doing
so.
Results presentation and webcast arrangements
Management will host a webcast presentation for analysts and
investors at 9:00am (UK Time), Thursday 23 February 2023.
The presentation can be accessed remotely via a live webcast
link, as detailed below. After the meeting, the webcast recording
will be made available and access details of this recording are
also set out below.
A copy of the presentation will be made available from 7:00am
(UK time) on Thursday 23 February 2023 for download at:
www.drax.com >>investors>>results-reports-agm>>
#investor-relations-presentations or use the link
https://www.drax.com/investors/announcements-events-reports/presentations/
Event Title: Drax Group plc: Full Year Results
Event Date: Thursday 23 February 2023
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9:00am (UK time)
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Webcast Live Event Link: https://secure.emincote.com/client/drax/drax024
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Conference call and pre-register https://secure.emincote.com/client/drax/drax024/vip_connect
Link:
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Start Date: Thursday 23 February 2023
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Delete Date: Thursday 23 February 2024
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Archive Link: https://secure.emincote.com/client/drax/drax024
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For further information, please contact: rosie.corbett@fticonsutling.com
Website: www.drax.com
Chair's statement
The Group's three strategic objectives - to be a global leader
in sustainable biomass pellets; to be a global leader in carbon
removals; and to be a UK leader in dispatchable, renewable power -
are aligned with a number of global energy policies. Such policies
increasingly recognise the important role that sustainable biomass
and carbon removals can play in the fight against climate
change.
Since 2012, we have reduced our generation Scope 1 and 2 carbon
emissions by approximately 99%, principally reflecting our
long-term investment in sustainable biomass. And we have continued
to progress our ambition to become a carbon negative company by
developing opportunities for bioenergy with carbon capture and
storage (BECCS) in the UK and North America.
While progressing our strategy, we also play an important role
in supporting UK energy security. Using our biomass, pumped
storage, and hydro assets, we generate large amounts of reliable,
renewable electricity and provide important system support services
to the UK power system. This reduces the UK's reliance on expensive
fossil fuels like gas and complements the greater use of
intermittent renewables such as wind.
In the future, biomass could offer a route to carbon removal
using BECCS. But, it must be the right biomass. The Group is
committed to this principle, in order to deliver positive outcomes
for the climate, nature, and people.
On a personal note, this will be my final year as Chair since I
plan to step down by 31 December 2023. By then, I will have served
as a director for nine years, having joined the Board in January
2015. In that time, I have seen the continued transition of Drax
from coal to biomass generation, the growth of our Pellet
Production business and supply chain, the development of
opportunities for BECCS, and the growth of the Group
internationally. These actions have all been undertaken alongside
our continuing commitment to deliver our purpose and contribute to
the fight against climate change.
Operations
In North America, our Pellet Production business has continued
to support efforts to optimise biomass power generation and
safeguard security of supply in the UK. At the same time, the
Pellet Production business has added over 500kt of extra production
capacity.
In the UK, our generation portfolio has continued to support the
UK power system and deliver high levels of flexible, dispatchable,
renewable electricity. In 2022, the Group was once again the UK's
largest source of renewable electricity by output, providing 11% of
the total from its biomass, pumped storage, and hydro generation
assets. At the UK Government's request, we agreed to make available
our two coal-fired units for the winter of 2022-2023, if required,
as a response to the European energy crisis following Russia's
invasion of Ukraine.
Our Customers business, which supplies electricity to businesses
and other organisations in the UK, has continued its recovery from
the impact of Covid-19.
Results and dividend
Adjusted EBITDA in 2022 was GBP731 million. This was
significantly higher than 2021 (GBP398 million), reflecting a
strong performance across the Group. The balance sheet also remains
strong, with Net debt at GBP1,206 million significantly below our
target ratio of 2.0 times Net debt to Adjusted EBITDA.
At the 2022 Half Year Results, we confirmed an interim dividend
of GBP34 million (8.4 pence per share). The Board proposes to pay a
final dividend in respect of 2022 of GBP50 million, equivalent to
12.6 pence per share. This will make the full year 2022 dividend
GBP84 million (21.0 pence per share) (2021: GBP75 million, 18.8
pence per share). This represents an 11.7% increase on 2021. It is
also consistent with our policy to pay a dividend that is
sustainable and expected to rise as the strategy delivers stable
earnings, cash flows and opportunities for growth.
The Group has a clear capital allocation policy. In determining
the rate of growth in dividends from one year to the next, the
Board will take account of cash flows from contracted income, the
less predictable cash flows from the Group's commodity-linked
revenue streams, and future investment opportunities. This includes
new biomass pellet plants, the development of options for BECCS in
the UK and North America, and the expansion of our pumped storage
power station at Cruachan. If there is a build-up of capital, the
Board will consider the most appropriate mechanism to return this
to shareholders.
Safety and sustainability
The safety, health and wellbeing of our colleagues and
contractors, together with our environmental impact, remain
priorities for the Group and the Board. We believe that safe,
compliant, and sustainable operations are integral to the delivery
of our strategy and crucial for sustained long-term performance.
These fundamentally underpin the continued success of the Group.
Safety and sustainability underpin our operational philosophy. We
continue to work across the Group to identify, implement, and
maintain high standards supported by a positive safety culture.
Sustainability is at the heart of the Group, and we believe that
achieving a positive economic, social, and environmental impact
helps us create sustainable long-term value. Throughout 2022, we
have continued our work as a Taskforce on Climate-Related Financial
Disclosures (TCFD) supporter. For example, we have submitted
science-based targets and identified opportunities for further
reductions of carbon emissions in our supply chain.
Delivering positive outcomes for climate, nature and people are
at the core of the Group's business model, and ensuring that Drax
only uses biomass which is sourced sustainably in the generation of
electricity is central to this ambition.
Biomass, when sustainably sourced, supports good forestry, is a
renewable source of energy, and we believe, is an important part of
both UK and international renewable energy policies. The Group
sources its biomass from well-established forestry markets,
primarily in the US and Canada.
We support responsible forestry practices by providing
incremental, secondary revenues to forest landowners through the
purchase of material which is not otherwise merchantable to a
sawmill. These materials are principally sawdust and sawmill
residues, bark, branches, low-grade roundwood, and woody material
from forest management activities. In addition, the markets we
source from are subject to national and regional regulation. We
supplement this regulation through our own biomass Responsible
Sourcing Policy and supply chain checks, with third-party
verification under the Sustainable Biomass Program in respect of
woody biomass used at Drax Power Station.
People and values
The Board remains committed to building a supportive, diverse,
and inclusive working environment where all colleagues feel they
belong. We continue to engage with, and listen to, our colleagues.
Will Gardiner, our CEO, and I met regularly with the chairs of our
workforce engagement forums during 2022, and we will continue to do
so in 2023. These meetings provide valuable ongoing insights and
feedback for the Board.
We monitor and challenge management on the steps being taken to
address diversity, and the Board receives regular updates at Board
meetings on the work being done. In recent years, we have made
progress on diversity, particularly in senior roles. By the end of
2022, our female representation at Board level was 44% and 40% for
the Executive Committee.
Summary
In 2022, we used our generation assets and our supply chain to
provide large volume, reliable and flexible power; we enhanced
security of supply in the UK; and we continued to deliver strong
financial performance with a sustainable and growing dividend.
At the same time, we have made good progress with our strategic
objectives. Our biomass growth strategy is clear and underpins our
plans for biomass sales, opportunities for BECCS, and renewable
power generation. Through these complementary opportunities, we
believe we can deliver sustainable long-term value to our
stakeholders as we realise our purpose of enabling a zero carbon,
lower cost energy future and become a carbon negative company.
Philip Cox, CBE
Chair
CEO's review
2022 saw a significant increase in gas prices, leading to
concerns about energy costs and security in the UK and beyond. At
Drax we have continued to play our part. We are the UK's largest
source of renewable power by output, a leading source of reliable
and flexible generation, and our ambition is to become a carbon
negative company by 2030.
Our portfolio generated over 4% of the UK's electricity between
October 2021 and October 2022 (the most recent period for which
data is available). We also generated 11% of the UK's renewable
electricity over the same period, making Drax the largest renewable
generator by output. In addition, our assets produced on average
19% of the UK's renewables at times of peak demand across the year
and up to 70% on certain days. This underlines the important role
that Drax plays in security of supply in the UK.
At the same time, we remain focused on our purpose - to enable a
zero carbon, lower cost energy future - and our ambition to become
a carbon negative company by 2030. This purpose and ambition drive
our commitment to address climate change. Since 2012, the Group's
actions have reduced our generation Scope 1 and 2 carbon emissions
by approximately 99%.
The world must act now to address the climate crisis and limit
global warming to 1.5(o) C above pre-industrial levels. We need
more renewable energy, more flexible energy systems to make the
best use of intermittent wind and solar energy, and crucially,
carbon removal technologies, like BECCS, to remove carbon from the
atmosphere.
We believe that Drax is a world leader in sustainable biomass
and that BECCS can become a world leading, UK-led, exportable
solution for large-scale carbon removals, subject to the right
regulatory and investment framework. Reflecting this belief, we are
continuing to develop an option for our UK BECCS project and
opportunities to invest in BECCS in North America. We believe this
could be the world's leading market for these types of
technologies.
These benefits will only be possible with the right biomass -
biomass that is sourced sustainably. At Drax we are committed to
using the right biomass, that can deliver positive outcomes for the
climate, nature, and people, and we have put in place policies,
controls, and reviews to support this.
Through our strategy we are creating exciting opportunities for
growth aligned to global decarbonisation efforts. Our investments
in these areas are underpinned by high quality earnings and cash
flows, which continue to support our commitment to a sustainable
and growing dividend.
Summary of 2022
Safety remains a primary focus and, in 2022, the Total
Recordable Incident Rate was 0.44 (2021: 0.22). This is not where
we want our safety performance to be. However, as reported at the
half year, the increase is explained in part by two developments.
Firstly, a widening of the scope to include contractor incidents.
Secondly, improvements in the recording of incidents in our Pellet
Production business, including the Pinnacle sites we acquired in
2021.
Since the acquisition we have implemented a health, safety and
environmental (HSE) improvement plan across our North American
operations and invested in training, human resource, and capital
projects to deliver improved performance. We are committed to a
strong safety culture across the Group and remain focused on
embedding these improvements to uplift performance accordingly.
Adjusted EBITDA of GBP731 million represents an 84% increase
compared to 2021 (GBP398 million). This reflects increased pellet
sales, a strong system support and renewable power generation
performance across the portfolio, and improved profitability in our
Customers business.
Our balance sheet is strong, with total cash and committed
facilities of GBP698 million and Net debt of GBP1,206 million.
Operationally, the Group's biomass, pumped storage, and hydro
assets have continued to support UK security of supply, providing
power system stability at a time of higher gas prices and
volatility on the power system.
We have used our pellet production and international supply
chain to reprofile biomass from the summer to winter, maximising
generation when it is most needed, based on system need and
sustainable biomass supply.
While supporting UK security of supply, we have also progressed
our options for BECCS in the UK and continued developing new
opportunities for the technology in North America.
Drax is a signatory to the UN Global Compact (UNGC) and we are
committed to promoting the UNGC principles concerning respect for
human rights, labour rights, the environment, and
anti-corruption.
Electricity Generator Levy
In December 2022, the UK Government confirmed the details of a
windfall tax - the Electricity Generator Levy (EGL) - on renewable
and low-carbon generators, due for implementation in 2023. The levy
will apply to the three biomass units operating under the
Renewables Obligation (RO) scheme and our run-of-river hydro
operations. However, it does not apply to the Contract for
Difference (CfD) biomass unit, pumped storage hydro, or coal
generation.
Through the second half of 2022, we engaged with the UK
Government on the issue of windfall taxes, and their impact on the
industry, to ensure a balanced approach. While we do not believe a
levy on renewables is appropriate, we welcome clarity and the
recognition that the cost base for biomass is different to
intermittent renewables such as wind. This is an important
distinction, as it means the EGL should not have an adverse impact
on biomass generation.
Operational performance
Pellet Production
In North America, our Pellet Production business reported
Adjusted EBITDA of GBP134 million, up 56% (2021: GBP86 million).
This primarily reflects higher levels of production and sales, as
well as revised transfer pricing in the second half of 2022.
Pellet production was 3.9 million tonnes (Mt), an increase of
27% (2021: 3.1Mt). This reflects a full 12 months' worth of
production from Pinnacle's plants following the acquisition in
April 2021. It also reflects increased capacity at Morehouse and
LaSalle, both in Louisiana, following their expansion.
In addition, we commissioned three new plants during 2022:
Demopolis in Alabama, plus Leola and Russellville (both in
Arkansas). In September 2022, we acquired a 90 kiloton (kt) pellet
plant in Princeton (British Columbia) from Princeton Standard
Pellet Corporation. These four plants combined will add over 500kt
of production when at full capacity.
In December 2022, the Group took a FID to develop two new pellet
production projects. The first is a 450kt new-build pellet plant at
Longview (Washington State) that includes the development of a new
port facility at the location. The second is a 130kt expansion of
our Aliceville site (Alabama). The combined investment in these
projects is expected to be in the region of $300 million, inclusive
of the effect of inflation on construction costs.
The development of the new plant at Longview will provide the
Group with access to a new fibre basket and we will also develop
port infrastructure at the Port of Longview, adding a fifth port to
the Group's North American supply chain, with the opportunity to
consolidate additional capacity in the future.
The US Pacific North-West will be the Group's fourth major area
of fibre supply alongside the US South; British Columbia; and
Alberta. The new facility is expected to support further
diversification of the Group's fibre sourcing production and export
capacity, supporting sales into Asian and European markets, as well
as own-use.
Taken together, existing operations and developments will give
Drax a network of 18 pellet plants, with access to five deep-water
ports on the East Coast and West Coast of North America.
In addition to our own-use of biomass, the Group also has
contracts to supply 22Mt of biomass to Asian and European
counterparties. These contracts extend into the 2030s, with total
revenues of over $4.1 billion.
Inflationary pressures, primarily in transportation and
utilities in North America during 2022, contributed to an increase
in our pellet production costs. Together with costs incurred in
providing supply-side flexibility, production costs for the Pellet
Production business are expected to be higher in 2023. These
increased costs have been considered in an adjusted transfer price
implemented in the second half of 2022.
We remain focused on opportunities to reduce the cost of biomass
but will balance this against the need to optimise our supply chain
to deliver value for the Group.
Generation
Adjusted EBITDA of GBP696 million from continuing operations was
an increase of 87% on 2021 (GBP372 million, inclusive of GBP20
million from discontinued CCGT operations). This reflects a strong
system support and renewable power generation performance across
the portfolio, providing high levels of dispatchable renewable and
low-carbon electricity and system support services, more than
offsetting incrementally higher biomass costs and grid charges. In
addition, there was no major planned outage undertaken in 2022,
compared to one in 2021.
Against the backdrop of increasing concern around European
energy security, we have optimised our biomass generation and
logistics, buying back positions in the first half of the year and
reprofiling to the second half. These actions provided additional
security of supply to the UK at times of expected higher
demand.
The process of moving generation between lower and higher demand
periods has resulted in an incremental increase in achieved power
prices - although this has not been without cost. We have incurred
direct logistics costs associated with changing our delivery
programme and managed an increased number of rail delivery
cancellations in the UK due to driver availability.
Over the past 12 months, the cost of biomass in the European
spot market has increased significantly, making it more challenging
to procure and generate additional power with a margin. As a result
of higher biomass prices, this created opportunities for the sale
of biomass in addition to generation.
Most of the biomass we use is under long-term contracts.
However, as we flagged during 2022, inflationary pressures in
certain aspects of our supply chain have led to some cost increases
and we expect this to continue in 2023.
Our pumped storage and hydro operations - Cruachan Pumped
Storage Power Station and the Lanark and Galloway hydro assets -
performed strongly helping to provide system stability. Together
with the Daldowie energy from waste plant, Adjusted EBITDA was
GBP171 million (2021: GBP68 million).
To move towards net zero, the UK needs to reduce its reliance on
fossil fuel generation from unabated gas. It also needs to increase
the amount of renewables, likely from intermittent wind and solar.
In this context, the role of flexible, dispatchable renewables like
biomass, pumped storage, and hydro has never been more important.
They are dispatchable and dependent on neither the weather nor the
price of gas. As such, we believe they represent a long-term part
of the UK power mix.
This underpins our plans for a potential investment in the
expansion of Cruachan Pumped Storage Power Station, and we continue
to expect to take a FID in 2024.
In July 2022, at the request of the UK Government, Drax entered
into an agreement with National Grid, to provide a "winter
contingency" service to support the UK power system via its legacy
coal units. The units will not generate commercially for the
duration of the agreement and will only operate if, and when,
instructed to do so by National Grid. To date National Grid has not
instructed the units to run, other than for testing. The contract,
which covers the period October 2022 to March 2023, provides a
fixed fee for the provision of the units with National Grid
remunerating Drax for costs, including the coal and carbon
associated with any generation.
The winter contingency service agreement is not expected to
interfere with our plans for developing BECCS at Drax Power
Station. Site preparation works for BECCS are ongoing and will
continue following formal closure of the coal units at the end of
March 2023 on conclusion of the contract with National Grid.
In March 2022, the Group signed a development agreement with
Engineering, Procurement and Construction (EPC) contractor
Mytilineos for the development of three 299MW Open Cycle Gas
Turbines (OCGTs). Each plant is expected to require investment in
the region of GBP100 million across the period 2022 to 2024. This
investment is underpinned by a 15-year Capacity Market agreement
for delivery between 2024 and 2039. We are continuing to evaluate
options for these projects, including their potential sale.
Customers
Our Customers business has performed well in 2022 with Adjusted
EBITDA of GBP26 million (2021: GBP6 million). The performance is an
improvement on 2021, when Covid-19 had an impact - principally in
the area of the business working with SME customers.
Over the past two years, we have restructured the Customers
business. This has included streamlining operations, with the
closure of offices in Oxford and Cardiff, and rebranding the Haven
Power Industrial & Commercial (I&C) business to Drax Energy
Solutions. These changes will support the development of our core
I&C supply business, which has performed well with growth in
the contracted sales position to high-quality customers.
We see an important role in supporting the decarbonisation of
I&C businesses through the supply of renewable energy, asset
optimisation, electric vehicle services, and carbon offset
certificates, which we believe could evolve in the future to the
provision of carbon removals.
Our Customers business has seen some increase in bad debt,
reflecting the impacts of higher prices. We have robust processes
in place to manage this.
Strategy
Our strategy is designed to realise our purpose of enabling a
zero carbon, lower cost energy future and our ambition to be a
carbon negative company by 2030.
The strategy includes three complementary strategic pillars,
closely aligned with global energy policies. These pillars are to
be a global leader in sustainable biomass pellets; to be a global
leader in carbon removals; and to be a UK leader in dispatchable,
renewable power.
A global leader in sustainable biomass pellets
We believe the global market for sustainable biomass will grow
significantly, creating international opportunities for sales to
third-parties, BECCS, generation and other long-term uses of
biomass.
To support this expected growth in demand for biomass products,
Drax is targeting 8Mt of pellet production capacity by 2030. This
will require the development of over 3Mt of new biomass pellet
production capacity to supplement existing capacity and
developments. We are developing a pipeline of organic projects,
principally focused on North America, which includes the recently
announced Longview project. We will also look at other
opportunities where appropriate.
Drax is differentiated as a major producer, supplier and user of
biomass, active in all areas of the supply chain, with long-term
relationships and 20 years of experience in biomass operations. The
Group's innovation in coal-to-biomass engineering, together with
the development of a leading position in carbon removals, can be
deployed alongside its large, reliable and sustainable supply chain
to support customer decarbonisation journeys with long-term
partnerships. We expect to sell all the biomass we produce at an
appropriate market price (both for own use at Drax Power Station
and to third-parties), typically under long-term contracts.
A global leader in carbon removals
BECCS - UK
We continue to develop options for BECCS. We plan to transform
Drax Power Station, through the addition of post combustion carbon
capture to two of the existing biomass units, using sustainable
biomass and technology from Drax's technology partner, Mitsubishi
Heavy Industries (MHI). Captured carbon dioxide (CO(2) ) will be
transported and stored by the Group's partners in the East Coast
Cluster. By 2030 the project aims to permanently remove 8Mt of
CO(2) per annum. An investment decision could be taken in 2024,
subject to the right investment framework.
In addition, Drax awaits the outcome of its bid into the "Track
1" Power BECCS submission process and publication of the
Government's Biomass Strategy. Alongside MHI's technology, we are
supporting other innovative options for carbon capture. For
example, Drax is an equity shareholder in C-Capture Limited, which
is developing a solvent technology that could be used for BECCS and
other applications. We believe this could deliver significant
long-term cost savings for future projects.
BECCS - North America
We want to capitalise on our belief in the global need for BECCS
and the technical expertise gained from our Drax Power Station
project. Our ambition is to deliver 4Mt of carbon removals each
year from BECCS outside of the UK by 2030. Accordingly, we are
developing models and locational preferences for global BECCS
developments, with a primary focus on North America.
Opportunities under consideration include new-build BECCS power
stations, as well as developing options for a pellet plant with
carbon capture, and using BECCS as an exportable solution, for
example in coal-to-biomass-to-BECCS on non-Drax assets.
Key considerations for these opportunities include proximity to
sustainable biomass fibre, carbon capture and storage (CCS)
infrastructure, regulatory support, commercial potential, and
technology.
We are currently evaluating a range of potential financial
models for these projects. These could include long-term Power
Purchase Agreements (PPAs), long-term Carbon Dioxide Removal (CDR)
offtake agreements, and government investment frameworks. In
September 2022, we announced a Memorandum of Understanding (MoU)
with Respira, which could see the largest volume of CDRs traded so
far globally. Under the MoU, Respira could purchase up to 2Mt of
CDRs over a five-year period from our North American BECCS
projects.
The regulatory environment for BECCS in the US continued to
develop in 2022, with the inclusion of BECCS as an eligible
technology under the Department of Energy climate goals funding
scheme and the increase in 45Q support to $85 per tonne of CO(2)
captured, under the Inflation Reduction Act (2022).
Furthermore, a recent National Renewable Energy Laboratory
report highlights that, by 2035, the US could need around 100Mt of
carbon removals from BECCS to offset remaining carbon emissions in
the power sector. In addition, recent State level developments in
Louisiana and California have both been supportive of the
development of BECCS.
Research by the Intergovernmental Panel on Climate Change
(IPCC), the world's leading authority on climate science, is also
supportive. The IPCC's research states that CDR methods, including
BECCS, are needed to mitigate residual emissions and keep the world
on a pathway to limit warming to 1.5oC.
The illustrative mitigation pathways assessed by the IPCC use
significant volumes of CDRs, including BECCS, as a tool for
mitigating climate change. IPCC modelling shows that between 0.5
and 9.5 billion tonnes of CDRs, including BECCS, could be required
annually by 2050 to reach global net zero. The UN-backed Principles
for Responsible Investment estimate that the CDR market could be
worth over a trillion dollars by 2050.
We believe there are significant growth opportunities linked to
BECCS in North America. To progress these opportunities in 2023,
the Group expects to invest in development expenditure in the
region of GBP30 million with a view to progressing these
opportunities to a FID. We expect to update on progress with these
opportunities in 2023.
A UK leader in dispatchable, renewable generation
The UK's plans to achieve net zero by 2050 will require the
electrification of sectors such as heating and transport systems,
resulting in a significant increase in demand for electricity. We
believe that intermittent renewable and inflexible low-carbon
energy sources - wind, solar and nuclear - could help meet this
demand. However, this will only be possible if the remaining power
sources can provide the dispatchable power and non-generation
system support services required to ensure security of supply and
to limit the cost to the consumer.
Long-term biomass generation and pumped storage hydro can
provide these increasingly important services and we are developing
an option for new pumped storage - the expansion of Cruachan Power
Station - to provide an additional 600MW of dispatchable
long-duration storage to the power system. A planning application
was submitted in May 2022, and any investment remains subject to
the right investment infrastructure and support.
The location, flexibility and range of services Cruachan can
provide makes it strategically important to the UK power system. A
FID could be taken in 2024 and the development operational by 2030.
Any investment decision will depend on the right regulatory
framework.
Biomass sustainability
Delivering positive outcomes for climate, nature and people are
central to our plans. Ensuring that we only use biomass that is
sourced sustainably is key to this ambition.
Biomass, when sustainably sourced, supports good forestry, is a
renewable source of energy, and we believe represents an important
part of both UK and international renewable energy policy.
Drax sources its biomass from well-established forestry markets
mainly in the US and Canada, as well as Europe. The main output
from these markets is sawlogs, which are processed for use in
construction and manufacturing. When used in this way, these
materials represent a source of long-term carbon storage and, when
the forest regenerates or is replanted, the growing trees absorb
carbon from the atmosphere.
Drax supports these forest economies by providing incremental
secondary revenues to forest landowners through the purchase of
material which is not otherwise merchantable to a sawmill and has
limited alternative uses. These materials include bark, branches,
low-grade wood and woody matter from forest management activities
(thinning), in addition to purchasing sawmill residues. This
reduces the risk of wildfire and the spread of disease, and allows
for replanting of the forest. Where there would otherwise be no
demand for these materials, they are sometimes burned at the
roadside, as happens in British Columbia.
In the US South, the periodic thinning of a forest helps improve
the size and quality of sawlogs when the trees reach maturity, the
economic value of the timber produced and the carbon absorbed and
stored, as well as forest health and biodiversity.
If forests were not thinned, the revenue from sawlogs would be
reduced and landowners may consider other uses for their land, such
as agricultural crops and livestock farming. The management of
forestland to produce sawlogs ensures forests are growing
vigorously and absorbing carbon, which means forests remain a
carbon sink.
Forests in the areas where Drax sources material are subject to
national and regional regulation and typically supported by, and
independently monitored for compliance by, forest certification
schemes. These include the Forestry Stewardship Council (FSC(R)
C119787), the Sustainable Forestry Initiative (SFI), and the
Programme for the Endorsement of Forest Certification (c) (PEFC)
(PEFC/16-37-1769).
We supplement this regulation through our own Responsible
Sourcing Policy and supply chain checks, with third-party
verification under the Sustainable Biomass Program (SBP), in
respect of woody biomass used at Drax Power Station.
Outlook
The Group is continuing to play an important role in supporting
energy security of supply in the UK, using our supply chain and
flexible, renewable generation portfolio to provide large volumes
of reliable renewable power and system stability at a time of
higher gas prices.
Our long-term focus remains on progressing our strategy and our
ambition to become a carbon negative company by 2030, underpinned
by the development of BECCS. The potential for the growth in carbon
removals, the opportunity this could afford BECCS in the UK and our
plans for North America is significant, and we expect to make
further progress on these options during 2023.
Through these strategic objectives, we expect to create
opportunities for long-term international growth underpinned by
strong cash generation and attractive returns for shareholders, and
to deliver value for our other stakeholders.
Will Gardiner
Chief Executive Officer
Financial Review
Adjusted EBITDA Adjusted operating Total operating Cash generated
from continuing profit from continuing profit from continuing from operations
and discontinued operations operations
operations
-------------------- ------------------------- ------------------------ --------------------
GBP731m GBP469m GBP146m GBP320m
(2021: GBP398m) (2021: GBP170m) (2021: GBP197m) (2021: GBP354m)
-------------------- ------------------------- ------------------------ --------------------
Adjusted basic Total basic earnings Net debt to Adjusted Total dividend
earnings per share per share from EBITDA ratio per share
from continuing continuing and
and discontinued discontinued operations
operations
-------------------- ------------------------- ------------------------ --------------------
85.1 pence 21.3 pence 1.6 times 21.0 pence
(2021: 26.5 pence) (2021: 20.0 pence) (2021: 2.8 times) (2021: 18.8 pence)
-------------------- ------------------------- ------------------------ --------------------
Introduction
Consolidated Adjusted EBITDA of GBP731 million (2021: GBP398
million) reflects a strong performance from all business units as
we benefited from the integrated nature of our business model,
against a backdrop of volatile macroeconomic conditions. Cash
generated from operations of GBP320 million (2021: GBP354 million)
is stated after cash collateral outflows of GBP407 million during
the year, associated with forward sales of power (2021: inflows of
GBP168 million). Excluding the impact of these cash collateral
outflows, the underlying cash generated from operations grew
significantly, reflecting the increase in Adjusted EBITDA.
Closing Net debt to Adjusted EBITDA of 1.6 times (2021: 2.8
times) is significantly below the Group's long-term target of 2.0
times and reduces to 1.3 times if collateral posted of GBP234
million is adjusted for (2021: 3.2 times, collateral held of GBP173
million).
Total operating profit was GBP146 million (2021: GBP197
million). Total gross profit increased by GBP132 million to
GBP1,023 million (2021: GBP891 million) but this was offset by
increases in operating and administrative expenses, impairment
losses on financial assets, increased depreciation charges, and
impairment of non-current assets.
Capital expenditure of GBP255 million grew 7% compared to GBP238
million in 2021, with GBP127 million spent on major strategic
initiatives, including GBP90 million on the development of our OCGT
projects. The proposed full year dividend of 21.0 pence per share
reflects a 12% increase on the previous year (2021: 18.8 pence per
share) as the Group continues to pay a sustainable and growing
dividend in line with its long-standing capital allocation
policy.
Year end 31 December
----------------------
2022 2021
------------------------ --------------------------------------------- ---------- ----------
Financial performance
(GBPm) Total gross profit 1,023 891
------------------------ --------------------------------------------- ---------- ----------
Operating and administrative expenses (543) (470)
---------------------------------------------------------------------- ---------- ----------
Impairment losses on financial assets (48) (16)
---------------------------------------------------------------------- ---------- ----------
Depreciation and amortisation (239) (199)
---------------------------------------------------------------------- ---------- ----------
Impairment of non-current assets (42) -
---------------------------------------------------------------------- ---------- ----------
Other (6) (10)
---------------------------------------------------------------------- ---------- ----------
Total operating profit 146 197
---------------------------------------------------------------------- ---------- ----------
Exceptional costs and certain remeasurements 323 (26)
---------------------------------------------------------------------- ---------- ----------
Adjusted operating profit 469 170
---------------------------------------------------------------------- ---------- ----------
Adjusted depreciation, amortisation,
asset obsolescence charges
and losses on disposal of fixed
assets 261 208
---------------------------------------------------------------------- ---------- ----------
Adjusted EBITDA from continuing operations 731 378
---------------------------------------------------------------------- ---------- ----------
Adjusted EBITDA from discontinued
CCGT operations - 20
---------------------------------------------------------------------- ---------- ----------
Adjusted EBITDA from continuing and
discontinued operations 731 398
---------------------------------------------------------------------- ---------- ----------
Capital expenditure
(GBPm) Capital expenditure for the year 255 238
------------------------ --------------------------------------------- ---------- ----------
Cash and Net debt
(GBPm unless otherwise
stated) Cash generated from operations 320 354
------------------------ --------------------------------------------- ---------- ----------
Net debt* 1,206 1,108
---------------------------------------------------------------------- ---------- ----------
Net debt to Adjusted EBITDA (times)* 1.6 2.8
---------------------------------------------------------------------- ---------- ----------
Cash and committed facilities 698 549
---------------------------------------------------------------------- ---------- ----------
Earnings (pence per
share) Adjusted basic 85.1 26.5
------------------------ --------------------------------------------- ---------- ----------
Total basic 21.3 20.0
---------------------------------------------------------------------- ---------- ----------
Distributions (pence
per share) Interim dividend 8.4 7.5
------------------------ --------------------------------------------- ---------- ----------
Proposed final dividend 12.6 11.3
---------------------------------------------------------------------- ---------- ----------
Total dividend 21.0 18.8
---------------------------------------------------------------------- ---------- ----------
We calculate Adjusted financial performance measures, which
exclude income statement volatility from derivative financial
instruments and the impact of exceptional items. This allows
management and stakeholders to better compare the performance of
the Group between the current and previous year without the effects
of this volatility and one off or non-operational items. Adjusted
financial performance measures are described more fully in the APMs
glossary, with a reconciliation to their statutory equivalents in
note 4.
Throughout this document we distinguish between Adjusted
measures and Total measures, which are calculated in accordance
with International Financial Reporting Standards (IFRS). On 31
January 2021, the Group completed the sale of its portfolio of CCGT
assets to VPI Generation Limited. Because of this transaction, the
results of the CCGT portfolio for 2021 have been classified as
discontinued operations in the Consolidated financial statements.
References to financial performance measures throughout this
document refer to continuing operations, unless otherwise stated.
Tables in this financial review may not add down/across due to
rounding.
*In previous years Net debt was presented on a 'before the
impact of hedging' basis. However, we consider including the impact
of foreign currency hedges associated with borrowings to better
reflect the economic reality of the Group's indebtedness, i.e. to
reflect the fixed GBP cash flows of foreign currency denominated
debt. Thus, all references to 'Net debt' now refer to the position
including the impact of hedging, unless otherwise stated. A
reconciliation of and between these measures can be seen in note
4.
Financial performance
Adjusted EBITDA
Adjusted EBITDA of GBP731 million is an 84% increase (2021:
GBP398 million). All business units delivered an increase in
Adjusted EBITDA compared to the previous year.
Our Pellet Production business generated Adjusted EBITDA of
GBP134 million (2021: GBP86 million). This reflects increased
production volumes attributable to commissioning new sites and a
full year of ownership of Pinnacle, an uplift in the Group's
intercompany sales price between our Pellet Production and
Generation businesses, and increased value achieved from sales of
biomass in the spot market, partially offset by increased costs of
production.
Our Pellet Production business produced 3.9Mt of pellets and
shipped 4.7Mt (2021: 3.1Mt produced and 3.2Mt shipped). Of this
volume 2.2Mt was sold to third parties (2021: 1.2Mt). Increased
volume produced primarily reflects the full year impact of the
acquired Pinnacle sites, which were added in April 2021 and
additional volumes achieved from the commissioning of new
sites.
Against the background of volatile commodity prices, the Pellet
Production business contributed significant value to the Group by
providing flexibility in biomass supply to Drax Power Station.
During 2022 we saw cost increases and inflationary pressures,
particularly in relation to utilities and transportation, and
incurred additional costs reprofiling biomass cargoes, both own use
and third-party, to support the provision of flexible generation to
the UK power system. The value achieved in the Generation business
exceeded the extra costs incurred.
We also incurred commissioning costs at new sites as we continue
to invest to expand capacity to support future growth opportunities
in North America.
Despite these cost increases, we continue to see opportunities
for cost reduction through additional production at existing
plants, driving efficiencies in production and logistics, and
implementing new technologies and innovation.
Our Generation business contributed GBP696 million of Adjusted
EBITDA, all from continuing operations (2021: GBP372 million,
inclusive of GBP20 million from discontinued CCGT operations).
Reprofiling of generation during the year allowed Drax Power
Station to support security of supply and maximise generation
during the winter months, based on the needs of the UK power
system.
This optimisation was underpinned by strong operational
performance, which effectively mitigated the increased risk of an
unplanned outage during periods of high power prices. In line with
our hedging policy, we managed this increased risk by retaining a
proportion of generating capacity unhedged.
The Group's hydro and pumped storage assets continued to supply
renewable electricity and essential services to the UK power system
and, inclusive of the results of the Daldowie energy from waste
plant, contributed GBP171 million of Adjusted EBITDA in 2022 (2021:
GBP68 million). This increase was achieved through higher hedged
power prices, increased rainfall in 2022 against a particularly low
year in 2021, and increased provision of critical services to the
system operator in support of system stability. This result is net
of a GBP6 million payment to the Voluntary Energy Redress Fund.
The extension to the availability of the coal units at Drax
Power Station at the request of the UK Government, as discussed in
the CEO's Review, delivered income during the final quarter of
2022.
The Customers business contributed GBP26 million of Adjusted
EBITDA during 2022, a significant increase on the GBP6 million
delivered in 2021. This reflects continued improvement from 2020,
when the impact of Covid-19 resulted in a loss of GBP39 million.
Volumes sold increased to 19.4TWh in 2022 (2021: 18.7TWh).
Our policy is to fully hedge power purchases for the duration of
a sales contract at the point that the contract is signed, based on
the customer's forecast consumption. During 2022, because of
increased market prices and lower customer demand profiles, we
benefited from the resale of forward hedged power back into the
merchant market above the contracted rate. Most of this benefit
arose in the first half of 2022.
The total bad debt charge for 2022, net of credits, was GBP48
million (2021: GBP16 million), an increase of GBP32 million. This
increase reflects the impact of higher commodity prices, which
feeds through to increased revenues and gross profit but also to
increased gross trade receivables. Before the application of
credits, the bad debt charge represents 1.4% of total revenue for
the Customers business (2021: 1.4%).
The overall bad debt provision at 31 December 2022 of GBP61
million (representing 18% of the Group's gross trade receivables
balance) compares to GBP47 million at 31 December 2021 (20% of the
Group's gross trade receivables balance). The net trade receivables
balance relating to the Customers segment at 31 December 2022 was
GBP244 million (31 December 2021: GBP161 million).
The bad debt provision reflects forward-looking consideration of
the potential impacts of UK Government support to customers and
other macroeconomic conditions. The Energy Bill Relief Scheme,
introduced by the UK Government, became effective from 1 October
2022. It provides financial support for non-domestic UK energy
customers by implementing a cap on their energy tariff. This scheme
ends in March 2023 and will be replaced by the Energy Bill Discount
Scheme, which will continue to provide support for businesses via a
discount on their tariff, as opposed to a cap.
Subsequent to 31 December 2022, following a strategic review the
Group decided to exit the market for supplying gas to SME business
customers, leading to the end of all gas sales by the Group. Having
already ceased acquiring new gas customers, no renewal contracts
will be offered after May 2023. We anticipate the portfolio will
reduce by over 50% by the end of 2023 and be almost entirely gone
by the end of 2024.
Innovation, capital projects, and other costs of GBP124 million
(2021: GBP65 million) primarily reflects increased spending to
support our growth ambitions and progress opportunities on major
projects which have not reached the stage where costs can be
capitalised (such as global BECCS). Innovation and capital projects
accounts for GBP12 million of this increase. The main components of
the GBP47 million increase in other costs were insurance costs
(GBP8 million), elimination of intra-group profits (GBP10 million)
and additional variable pay charges (GBP7 million).
Total operating profit
Total operating profit from continuing operations decreased from
GBP197 million in 2021 to GBP146 million in 2022. Within this is an
increase in Total gross profit of GBP132 million to GBP1,023
million (2021: GBP891 million) and an increase in Total operating
expenses of GBP73 million to GBP543 million (2021: GBP470 million)
reflecting the factors discussed above in relation to Adjusted
EBITDA.
The difference between Adjusted EBITDA and Total operating
profit results from adjustments for a net loss on exceptional costs
and certain remeasurements of GBP323 million (2021: a net gain of
GBP26 million) and charges associated with fixed assets of GBP261
million (2021: GBP208 million). These factors are discussed further
below.
The net loss from remeasurements on derivative contracts of
GBP298 million (2021: a GBP49 million gain), reflects adverse
movements in the valuation of gas and inflation contracts, offset
by favourable movements in the valuation of our foreign exchange
portfolio, as sterling weakened during 2022. The Group excludes
these certain remeasurements from Adjusted results to present a
clear and consistent review of the underlying performance, as
described in note 4.
Exceptional costs for 2022 totalled GBP25 million (2021: GBP22
million). Of this charge, GBP19 million reflects the write down of
previously capitalised costs in respect of a billing system where
the Group has stopped development and where proceedings have been
issued against the supplier to recover damages for
misrepresentation and breach of contract. The Group no longer
expects that any future economic benefit will be recovered as an
ongoing intangible asset. In accordance with accounting standards,
the previously capitalised balance has therefore been impaired.
Following consideration with external professional advisers, the
Group continues to believe this previously incurred expenditure
will be recovered from the supplier, and there has been no change
in this position during 2022. Accordingly, an associated contingent
asset has been disclosed.
The remaining GBP6 million of the 2022 charge relates to
previously capitalised Software as a Service costs, which were
written off following a change in accounting policy effective 1
January 2022.
Depreciation and amortisation charges increased from GBP199
million in 2021 to GBP239 million in 2022. Of this increase, GBP13
million is attributable to the inclusion of Pinnacle for a full
year in 2022, and GBP7 million to depreciation on new sites. The
remainder is attributable to accelerated depreciation of certain
pellet plant equipment in line with planned capital upgrades.
Adjusted impairments of non-current assets was GBP17 million
(2021: GBPnil). Of this total charge GBP9 million relates to the
impairment of the Group's fourth OCGT development opportunity,
which is considered unlikely to be developed at the current time.
The three projects that have already secured Capacity Market
contracts remain in development, ready to meet their obligations
when those contracts commence in 2024. The expected economic
benefit to the Group continues to be attractive. A further GBP8
million relates to a partial impairment of the assets of the
Daldowie energy from waste plant, due to a reduction in the
forecast earnings over the remaining period of ownership to 2026,
when the assets will be transferred back to Scottish Water after
they triggered an option in the Private Finance Initiative
agreement.
Profit after tax and earnings per share
Total net interest charges for 2022 of GBP68 million reduced in
the year (2021: GBP75 million). The movement included a foreign
exchange gain of GBP11 million (2021: GBP4 million loss) which
resulted from the weakening of sterling during 2022, and the
subsequent revaluation of intercompany loans denominated in foreign
currencies. This reduction has been offset by an increase in
monetisation fees related to the facility available to accelerate
cash flows associated with trade receivables in the Customers
business, as that facility has increased in size from GBP200
million to GBP400 million during 2022, as discussed in note 7.
The Total tax credit of GBP4 million includes a charge of GBP67
million on Adjusted results offset by a credit of GBP72 million on
exceptional items and certain remeasurements, the latter
predominantly driven by the tax impact of the GBP302 million of
certain remeasurements discussed in note 4.
The effective tax rate applicable to the Group's Adjusted
pre-tax profits of 17% (2021: 12%) is below the standard rate of
corporation tax in the UK and includes the effect of tax rates in
overseas jurisdictions. This rate is lower than the standard rate
in the UK because of credits attributable to Patent Box and the
super-deduction for qualifying plant and machinery, announced in
March 2021 and running until March 2023. The increase in effective
tax rate from 2021 has been driven by growth in UK-based profits,
diluting the impact of the Patent Box and super-deduction
credits.
The exceptional deferred tax credit of GBP10 million in 2022
(2021: GBP49 million charge) relates to the corporation tax rate
changes announced by the UK Government in 2021, being a planned
increase from 19% to 25% in April 2023.
In November 2022 the UK Government announced the Electricity
Generator Levy. The levy is not deductible for corporation tax
purposes and therefore will result in an increase in the Group's
effective tax rate for 2023. Payment of the levy will be in line
with the Group's arrangements for corporation tax payments, once
substantively enacted.
Adjusted and Total profit after tax attributable to the
discontinued CCGT operations was GBPnil during 2022 (2021: GBP17
million and GBP24 million respectively). The above factors all
contributed to Adjusted basic earnings per share of 85.1 pence
(2021: 26.5 pence) and a Total basic earnings per share figure of
21.3 pence (2021: 20.0 pence).
Capital expenditure
Capital expenditure in the year was GBP255 million (2021: GBP238
million). GBP127 million was on strategic initiatives, including
GBP90 million in respect of development of our OCGT projects and
GBP19 million on UK BECCS, GBP79 million on maintenance capital,
GBP27 million on enhancing existing assets and GBP22 million on
Health, safety, environment and IT.
The OCGT projects are progressing in line with the requirement
to be operational at the beginning of their Capacity Market
contracts in 2024. Delivery of our UK BECCS project is subject to a
final investment decision, which is expected in 2024 and dependent
on the right regulatory and investment framework. Commissioning of
certain pellet assets in North America progressed more slowly than
anticipated during 2022. Our capital projects and operations teams
are focused on achieving full production capacity as soon as
possible during 2023.
In September 2022 the Pellet Production business completed the
acquisition of a 90kt pellet plant in Princeton, British Columbia,
for consideration of C$11.5 million. The plant will contribute to
the Group's strategy to increase pellet production to 8Mt per year
by 2030.
Cash and Net debt
Cash generated from operations
Operating cash flows before movements in working capital and
defined benefit pension obligations for the period was GBP734
million (2021: GBP337 million), primarily reflecting the increase
in Adjusted EBITDA.
Cash generated from operations in 2022, inclusive of movements
in working capital, of GBP320 million compares to GBP354 million in
2021. The total outflow of GBP403 million on working capital
includes an outflow during the year of GBP407 million relating to
cash collateral. This has been driven by increased use of exchange
traded contracts during the year, with increased commodity prices
meaning that counterparty credit limits had to be managed
carefully. Exchange traded contracts typically require an up-front
margin payment and cash collateralisation of mark-to-market
positions. Excluding the cash flows in relation to collateral
during the year there was a small working capital inflow.
At 31 December 2022, the Group had posted GBP234 million of cash
collateral (2021: held GBP173 million of cash collateral). When the
associated trades mature in 2023 and 2024 there will be a
corresponding working capital inflow, however market movements and
new trades will continue to determine overall cash collateral
requirements in the future.
There was a net outflow in relation to trade and other
receivables during the year. Excluding movements in working capital
facilities and cash collateral postings, trade receivables
increased by GBP551 million. This was driven primarily by higher
billing in the Customers business, reflecting increased commodity
prices. The facility available to accelerate cash flows associated
with trade receivables in the Customers business, on a non-recourse
basis, was extended during 2022 from GBP200 million to GBP400
million. The extended facility was fully utilised during the year,
resulting in a cash inflow of GBP200 million and a corresponding
reduction in receivables. This reduction was offset by an outflow
of GBP234 million on collateral posted, as described above, which
is recorded within receivables.
The overall working capital inflow of GBP317 million from
payables in 2022 was predominantly driven by increases in the
Customers business, reflecting higher commodity prices on power and
gas purchases. This was partially offset by the change from holding
net cash collateral of GBP173 million at the beginning of 2022 to
having posted GBP234 million at the end of the year, with the gross
movement on collateral at the beginning of 2022 showing as a
reduction in payables.
A GBP114 million inflow from renewable certificate assets was
driven by the monetisation of ROCs using available facilities,
partially offset by the increase in ROC assets attributable to
generation in the year.
Cash outflows on inventories totalled GBP133 million during
2022, resulting in part from the reprofiling of generation from
summer to winter, meaning more cash was held in inventory at 31
December 2022.
Net cash movements
Capital expenditure cash flows for 2022 totalled GBP175 million
(2021: GBP209 million). Cash flows associated with capital
expenditure on the three OCGT projects are significantly lower than
the accounting additions recorded because of the use of letters of
credit to extend payment terms. The amount outstanding under these
arrangements at 31 December 2022 was GBP65 million (31 December
2021: GBPnil).
Corporation tax payments totalled GBP39 million in 2022 (2021:
GBP12 million receipts), reflecting higher UK payments on account
in respect of the increased profits chargeable to corporation
tax.
Net debt and Net debt to Adjusted EBITDA
Year ended 31 December
------------------------
2022 2021
GBPm GBPm
--------------------------------------------------------- ----------- -----------
Cash and cash equivalents 238 317
--------------------------------------------------------- ----------- -----------
Current borrowings (44) (41)
--------------------------------------------------------- ----------- -----------
Non-current borrowings (1,397) (1,320)
--------------------------------------------------------- ----------- -----------
Net debt before impact of hedging instruments (1,203) (1,044)
--------------------------------------------------------- ----------- -----------
Impact of hedging instruments (2) (64)
--------------------------------------------------------- ----------- -----------
Net debt (1,206) (1,108)
--------------------------------------------------------- ----------- -----------
Impact of collateral 234 (173)
--------------------------------------------------------- ----------- -----------
Net debt excluding collateral (972) (1,281)
--------------------------------------------------------- ----------- -----------
Adjusted EBITDA 731 398
--------------------------------------------------------- ----------- -----------
Net debt to Adjusted EBITDA (times) 1.6 2.8
--------------------------------------------------------- ----------- -----------
Net debt excluding collateral to Adjusted EBITDA (times) 1.3 3.2
--------------------------------------------------------- ----------- -----------
The Net debt to Adjusted EBITDA ratio is significantly below our
target of 2.0 times at 31 December 2022, and reduces to 1.3 times
when adjusted for cash collateral posted.
In previous years, Net debt was presented on the 'before impact
of hedging' basis. However, we consider including the impact of
foreign currency hedges associated with borrowings to better
reflect the economic reality of the Group's indebtedness position.
Thus, all references to 'Net debt' now refer to the position
including the impact of hedging, unless otherwise stated. The
impact of this change on Net debt at 31 December 2022 is to
increase it by GBP2 million.
Liquidity
Year ended 31 December
------------------------
2022 2021
------------------------------------ ----------- -----------
Cash and cash equivalents 238 317
------------------------------------ ----------- -----------
RCF available but not utilised 260 231
------------------------------------ ----------- -----------
Short-term liquidity facility 200 -
------------------------------------ ----------- -----------
Total cash and committed facilities 698 549
------------------------------------ ----------- -----------
Cash and committed facilities at 31 December 2022 of GBP698
million (2021: GBP549 million) provide substantial headroom over
our short-term liquidity requirements. In addition to cash-on-hand,
the Group has access to a GBP300 million ESG Revolving Credit
Facility (RCF) and a C$10 million RCF, to manage low points in the
cash cycle. The GBP300 million ESG RCF expires in January 2025,
with a one-year extension clause. No cash has been drawn under this
RCF since its inception over three years ago, but GBP46 million was
drawn for letters of credit at 31 December 2022 (31 December 2021:
GBP74 million drawn for letters of credit).
In December 2022 the Group agreed a new 12-month GBP200 million
liquidity facility with its existing lending group. This facility
provides an additional source of liquidity to the Group's GBP300
million RCF. The new facility was temporarily drawn during
December, to support optimisation of generation and associated cash
collateral postings, but was undrawn at 31 December 2022.
Separately, GBP44 million was drawn under an uncommitted facility
during the second half of 2022 and remained outstanding at 31
December 2022 also to support optimisation of generation during
winter (31 December 2021: GBPnil).
During the first half of 2022, the Group utilised existing cash
reserves to repay its index-linked term loan facility, with a total
cash outflow of GBP41 million. Our liquidity position remains
robust, having put additional measures in place during the year in
response to the volatility in commodity markets. All three of our
ratings agencies evaluated our outlook as stable during the
year.
Derivatives
We use derivatives to hedge commodity price and foreign exchange
risk. In 2022 there was significant volatility in these markets,
leading to a net GBP302 million charge related to certain
remeasurements, which we continue to adjust for when presenting
Adjusted results. Increases in the value of foreign exchange
related derivative contracts were more than offset by increases in
liabilities in relation to gas and inflation trades.
Rebasing is a process whereby the rates agreed in a contract are
modified to current market rates. This leads to an initial cash
inflow, as the mark-to-market on the contract is settled at the
time of rebasing, with a subsequent outflow in future years,
compared to if no action had been taken. The Group rebased
contracts during the first half of 2020 to realise working capital
benefits in light of the developing Covid-19 pandemic. At the end
of 2022, outstanding cash received from rebased cross-currency swap
trades was GBP43 million (2021: GBP48 million).
Distributions
In line with our long-standing capital allocation policy, the
Group is committed to paying a growing and sustainable dividend. On
25 July 2022, the Board approved an interim dividend for the six
months ended 30 June 2022 of 8.4 pence per share. This was paid on
7 October 2022 with a record date of 26 August 2022.
At the Annual General Meeting on 26 April 2023, the Board will
recommend to shareholders a resolution to pay a final dividend for
the year ended 31 December 2022 of 12.6 pence per share. If
approved, the final dividend will be paid on 19 May 2023, with a
record date of 21 April 2023.
Taken together with the interim dividend this would give a total
dividend for 2022 of 21.0 pence per share (2021: 18.8 pence per
share), representing a 12% increase, in line with our policy of
paying a sustainable and growing dividend.
Our capital allocation policy is unchanged and incorporates
maintaining our credit rating; investing in the core business;
paying a sustainable and growing dividend and then returning
surplus capital beyond investment requirements.
Going concern and viability
The Group's financial performance in 2022 was strong, delivering
improved profitability and a decrease in the Net debt to Adjusted
EBITDA ratio. Our financing platform is stable, with most of our
principal debt repayments due from 2025 onwards and significant
liquidity headroom available from both committed and uncommitted
facilities.
The Group refreshes its business plan and forecasts throughout
the year, including scenario modelling designed to test the
resilience of the Group's financial position and performance to
several possible downside scenarios. Based on its review of the
latest forecast, the Board is satisfied that the Group has
sufficient headroom in its cash and committed facilities, combined
with available mitigating actions, to be able to meet its
liabilities as they fall due across a range of scenarios.
The Directors therefore have a reasonable expectation that the
Group will be able to continue in operation over the five-year
period of the viability assessment. Consequently, the Directors
also have a reasonable expectation that the Group will continue in
existence for a period of at least 12 months from the date of the
approval of the financial statements and have therefore adopted the
going concern basis.
Other information
Non-Controlling Interest purchase
On 30 September 2022, the Group completed the acquisition of the
remaining 10% minority interest in Alabama Pellets LLC for cash
consideration of $22 million. Alabama Pellets LLC contained the two
pellet plants at Aliceville and Demopolis, prior to their
reorganisation into separate entities. This acquisition provided
the Group with economic rights over a further 66kt of biomass
production capacity.
Pension plan merger
Historically, the Group has operated two defined benefit pension
schemes, the Drax ESPS scheme and the Drax 2019 scheme. On 31
January 2023 these two schemes were merged. The impact of this will
be to reduce levels of administrative expenses and time taken to
manage the two schemes, as well as providing the ability to pool
the assets of the schemes when making investment decisions. There
will be no change to members' benefits as a result of the
merger.
Andy Skelton
CFO
Directors' responsibilities statement
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
are required to prepare the group financial statements in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and United Kingdom
adopted International Accounting Standards and have elected to
prepare the Parent Company financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law), set out in FRS
101 Reduced Disclosure Framework. Under company law the Directors
must not approve the accounts unless they are satisfied that they
give a true and fair view of the state of affairs of the Company
and of the profit or loss of the Company for that period.
In preparing the Parent Company financial statements, the
Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair
view
of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole;
-- the Strategic report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- the annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
This responsibility statement was approved by the Board of
Directors on 22 February 2023 and is signed on its behalf by:
Will Gardiner
Chief Executive Officer
Consolidated income statement
Year ended 31 December Year ended 31 December
2022 2021
------------------------------------- -------------------------------------
Exceptional Exceptional
items items
Adjusted and Adjusted and
results certain Total results certain Total
(1) remeasurements results (1) remeasurements results
Notes GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Revenue 2 8,159.2 (383.9) 7,775.3 5,173.9 (85.9) 5,088.0
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Cost of sales (6,837.7) 85.7 (6,752.0) (4,331.1) 134.3 (4,196.8)
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Gross profit 1,321.5 (298.2) 1,023.3 842.8 48.4 891.2
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Operating and administrative
expenses (542.8) - (542.8) (448.4) (21.5) (469.9)
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Impairment losses
on financial assets (48.0) - (48.0) (16.3) - (16.3)
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Depreciation (208.0) - (208.0) (164.5) (0.5) (165.0)
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Amortisation (31.4) - (31.4) (34.4) - (34.4)
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Impairment of non-current
assets (16.6) (24.9) (41.5) - - -
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Other losses (5.8) - (5.8) (9.4) - (9.4)
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Income from associates 0.5 - 0.5 0.3 - 0.3
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Operating profit/(loss) 469.4 (323.1) 146.3 170.1 26.4 196.5
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Foreign exchange
gains/(losses) 14.8 (3.8) 11.0 0.9 (5.1) (4.2)
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Interest payable
and similar charges (83.1) (0.4) (83.5) (70.9) (0.3) (71.2)
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Interest receivable 4.3 - 4.3 0.4 - 0.4
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Profit/(loss) before
tax 405.4 (327.3) 78.1 100.5 21.0 121.5
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Tax:
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
- Before effect of
changes in tax rate 3 (64.5) 62.2 (2.3) (11.7) (5.7) (17.4)
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
- Effect of changes
in tax rate 3 (2.9) 9.6 6.7 (0.4) (48.6) (49.0)
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Total tax (charge)/credit (67.4) 71.8 4.4 (12.1) (54.3) (66.4)
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Net profit/(loss)
from continuing operations
(2) 338.0 (255.5) 82.5 88.4 (33.3) 55.1
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Net profit from discontinued
operations - - - 16.7 7.4 24.1
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Profit/(loss) for
the period 338.0 (255.5) 82.5 105.1 (25.9) 79.2
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Attributable to:
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Owners of the Parent
Company 340.6 (255.5) 85.1 105.6 (25.9) 79.7
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Non-controlling interests (2.6) - (2.6) (0.5) - (0.5)
----------------------------- ----- --------- --------------- --------- --------- --------------- ---------
Earnings per share: Pence Pence Pence Pence
------------------------- ----- ----- ----- -----
For net profit from
continuing operations
attributable to the
owners of the Parent
Company
------------------------- ----- ----- ----- -----
- Basic 5 85.1 21.3 22.3 13.9
------------------------- ----- ----- ----- -----
- Diluted 5 82.2 20.5 21.5 13.5
------------------------- ----- ----- ----- -----
For net profit for
the period attributable
to the owners of the
Parent Company
------------------------- ----- ----- ----- -----
- Basic 5 85.1 21.3 26.5 20.0
------------------------- ----- ----- ----- -----
- Diluted 5 82.2 20.5 25.6 19.3
------------------------- ----- ----- ----- -----
Notes:
(1) Adjusted results are stated after adjusting for exceptional
items (including impairment of non-current assets, acquisition
costs and restructuring costs), and certain remeasurements. See
note 4 for further details.
(2) The 2022 Adjusted net profit from continuing operations of
GBP338.0 million (2021: GBP88.4 million) is inclusive of GBP(2.6)
million (2021: GBP(0.5) million) attributable to non-controlling
interests.
Consolidated statement of comprehensive income
Year ended 31 December
------------------------
2022 2021
Notes GBPm GBPm
------------------------------------------------------ ----- ----------- -----------
Profit for the period 82.5 79.2
------------------------------------------------------ ----- ----------- -----------
Items that will not be subsequently reclassified
to profit or loss:
------------------------------------------------------ ----- ----------- -----------
Remeasurement of defined benefit pension scheme (24.4) 30.7
------------------------------------------------------ ----- ----------- -----------
Deferred tax on remeasurement of defined benefit
pension scheme 3 6.1 (7.2)
------------------------------------------------------ ----- ----------- -----------
Deferred tax on share-based payments 3 - 5.4
------------------------------------------------------ ----- ----------- -----------
Net fair value (losses)/gains on cost of hedging (19.0) 17.3
------------------------------------------------------ ----- ----------- -----------
Deferred tax on cost of hedging 3 2.2 (7.7)
------------------------------------------------------ ----- ----------- -----------
Net fair value gains on cash flow hedges 205.5 1.1
------------------------------------------------------ ----- ----------- -----------
Deferred tax on cash flow hedges 3 (49.5) 3.6
------------------------------------------------------ ----- ----------- -----------
Items that may be subsequently reclassified
to profit or loss:
------------------------------------------------------ ----- ----------- -----------
Exchange differences on translation of foreign
operations attributable to the owner of the
Parent Company 42.4 8.7
------------------------------------------------------ ----- ----------- -----------
Exchange differences on translation of foreign
operations attributable to non-controlling interests 3.4 (2.6)
------------------------------------------------------ ----- ----------- -----------
Net fair value losses on cash flow hedges (593.1) (182.0)
------------------------------------------------------ ----- ----------- -----------
Net gains on cash flow hedges reclassified to
profit or loss 432.9 12.6
------------------------------------------------------ ----- ----------- -----------
Deferred tax on cash flow hedges 3 43.9 37.6
------------------------------------------------------ ----- ----------- -----------
Other comprehensive income/(expense) 50.4 (82.5)
------------------------------------------------------ ----- ----------- -----------
Total comprehensive income/(expense) for the
year 132.9 (3.3)
------------------------------------------------------ ----- ----------- -----------
Attributable to:
------------------------------------------------------ ----- ----------- -----------
Owners of the Parent Company 132.1 (0.2)
------------------------------------------------------ ----- ----------- -----------
Non-controlling interests 0.8 (3.1)
------------------------------------------------------ ----- ----------- -----------
Consolidated balance sheet
As at 31 December
--------------------
2022 2021
Notes GBPm GBPm
-------------------------------------------------- ----- --------- ---------
Assets
-------------------------------------------------- ----- --------- ---------
Non-current assets
-------------------------------------------------- ----- --------- ---------
Goodwill 424.2 416.3
-------------------------------------------------- ----- --------- ---------
Intangible assets 142.3 188.6
-------------------------------------------------- ----- --------- ---------
Property, plant and equipment 2,388.0 2,310.7
-------------------------------------------------- ----- --------- ---------
Right-of-use assets 138.3 119.8
-------------------------------------------------- ----- --------- ---------
Investments 6.9 5.5
-------------------------------------------------- ----- --------- ---------
Retirement benefit surplus 38.5 48.9
-------------------------------------------------- ----- --------- ---------
Deferred tax assets 3 37.3 28.7
-------------------------------------------------- ----- --------- ---------
Derivative financial instruments 421.7 357.5
-------------------------------------------------- ----- --------- ---------
3,597.2 3,476.0
-------------------------------------------------- ----- --------- ---------
Current assets
-------------------------------------------------- ----- --------- ---------
Inventories 348.1 199.1
-------------------------------------------------- ----- --------- ---------
Renewable certificate assets 187.8 301.4
-------------------------------------------------- ----- --------- ---------
Trade and other receivables and contract assets 1,227.0 641.9
-------------------------------------------------- ----- --------- ---------
Derivative financial instruments 796.3 888.6
-------------------------------------------------- ----- --------- ---------
Cash and cash equivalents 238.0 317.4
-------------------------------------------------- ----- --------- ---------
2,797.2 2,348.4
-------------------------------------------------- ----- --------- ---------
Liabilities
-------------------------------------------------- ----- --------- ---------
Current liabilities
-------------------------------------------------- ----- --------- ---------
Trade and other payables and contract liabilities (1,527.9) (1,211.1)
-------------------------------------------------- ----- --------- ---------
Lease liabilities (22.7) (15.1)
-------------------------------------------------- ----- --------- ---------
Current tax liabilities (23.3) (3.4)
-------------------------------------------------- ----- --------- ---------
Borrowings (44.3) (40.6)
-------------------------------------------------- ----- --------- ---------
Derivative financial instruments (989.4) (962.7)
-------------------------------------------------- ----- --------- ---------
(2,607.6) (2,232.9)
-------------------------------------------------- ----- --------- ---------
Net current assets 189.6 115.5
-------------------------------------------------- ----- --------- ---------
Non-current liabilities
-------------------------------------------------- ----- --------- ---------
Borrowings (1,396.6) (1,320.4)
-------------------------------------------------- ----- --------- ---------
Lease liabilities (130.4) (110.8)
-------------------------------------------------- ----- --------- ---------
Provisions (58.6) (86.4)
-------------------------------------------------- ----- --------- ---------
Deferred tax liabilities 3 (141.6) (225.3)
-------------------------------------------------- ----- --------- ---------
Derivative financial instruments (735.4) (541.8)
-------------------------------------------------- ----- --------- ---------
(2,462.6) (2,284.7)
-------------------------------------------------- ----- --------- ---------
Net assets 1,324.2 1,306.8
-------------------------------------------------- ----- --------- ---------
Shareholders' equity
-------------------------------------------------- ----- --------- ---------
Issued equity 47.9 47.7
-------------------------------------------------- ----- --------- ---------
Share premium 433.3 432.2
-------------------------------------------------- ----- --------- ---------
Hedge reserve (152.0) (177.4)
-------------------------------------------------- ----- --------- ---------
Cost of hedging reserve 40.1 78.5
-------------------------------------------------- ----- --------- ---------
Other reserves 747.7 706.0
-------------------------------------------------- ----- --------- ---------
Retained profits 193.8 198.3
-------------------------------------------------- ----- --------- ---------
Total equity attributable to the owners of the
Parent Company 1,310.8 1,285.3
-------------------------------------------------- ----- --------- ---------
Non-controlling interests 13.4 21.5
-------------------------------------------------- ----- --------- ---------
Total shareholders' equity 1,324.2 1,306.8
-------------------------------------------------- ----- --------- ---------
The Consolidated financial statements of Drax Group plc,
registered number 5562053, were approved and authorised for issue
by the Board of Directors on 22 February 2023.
Signed on behalf of the Board of Directors:
Andy Skelton
CFO
Consolidated statement of changes in equity
Cost Non-
Issued Share Hedge of Other Retained controlling
equity premium reserve hedging reserves profits interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
At 1 January 2021 47.5 430.0 (76.0) 87.2 697.3 153.4 - 1,339.4
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Profit/(loss) for the year - - - - - 79.7 (0.5) 79.2
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Other comprehensive
(expense)/income - - (127.1) 9.6 8.7 28.9 (2.6) (82.5)
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Total comprehensive
(expense)/income
for the year - - (127.1) 9.6 8.7 108.6 (3.1) (3.3)
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Equity dividends paid (note
6) - - - - - (70.9) - (70.9)
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Issue of share capital 0.2 2.2 - - - - - 2.4
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Acquisition of subsidiary
with non-controlling interests - - - - - - 39.6 39.6
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Contributions from non-controlling
interests - - - - - - 6.5 6.5
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Acquisition of non-controlling
interests without a change
in control - - - - - (0.2) (21.5) (21.7)
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Total transactions with
the owners in their capacity
as owner 0.2 2.2 - - - (71.1) 24.6 (44.1)
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Movements on cash flow hedges
released directly from equity - - 33.2 - - - - 33.2
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Deferred tax on cash flow
hedges released directly
from equity (note 3) - - (7.5) - - - - (7.5)
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Movements on cost of hedging
released directly from equity - - - (23.7) - - - (23.7)
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Deferred tax on cost of
hedging released directly
from equity (note 3) - - - 5.4 - - - 5.4
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Movement in equity associated
with share -- based payments - - - - - 7.4 - 7.4
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
At 1 January 2022 47.7 432.2 (177.4) 78.5 706.0 198.3 21.5 1,306.8
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Profit/(loss) for the year - - - - - 85.1 (2.6) 82.5
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Other comprehensive
income/(expense) - - 39.7 (16.8) 42.4 (18.3) 3.4 50.4
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Total comprehensive
income/(expense)
for the year - - 39.7 (16.8) 42.4 66.8 0.8 132.9
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Equity dividends paid (note
6) - - - - - (78.9) - (78.9)
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Issue of share capital 0.2 1.1 - - - - - 1.3
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Contributions from non-controlling
interests - - - - - - 1.3 1.3
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Acquisition of non-controlling
interests without a change
in control - - - - (0.7) (9.3) (10.2) (20.2)
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Total transactions with
the owners in their capacity
as owner 0.2 1.1 - - (0.7) (88.2) (8.9) (96.5)
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Movements on cash flow hedges
released directly from equity - - (19.1) - - - - (19.1)
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Deferred tax on cash flow
hedges released directly
from equity (note 3) - - 4.8 - - - - 4.8
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Movements on cost of hedging
released directly from equity - - - (28.8) - - - (28.8)
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Deferred tax on cost of
hedging released directly
from equity (note 3) - - - 7.2 - - - 7.2
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Movement in equity associated
with share -- based payments - - - - - 9.5 - 9.5
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Deferred tax on share-based
payments released directly
from equity (note 3) - - - - - 7.4 - 7.4
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
At 31 December 2022 47.9 433.3 (152.0) 40.1 747.7 193.8 13.4 1,324.2
---------------------------------- ------- -------- -------- -------- --------- -------- ------------- -------
Consolidated cash flow statement
Year ended 31 December
------------------------
2022 2021
Notes GBPm GBPm
----------------------------------------------------- ----- ----------- -----------
Cash generated from operations 7 320.3 354.5
----------------------------------------------------- ----- ----------- -----------
Income taxes (paid)/refunded (38.7) 12.4
----------------------------------------------------- ----- ----------- -----------
Interest paid (77.2) (60.5)
----------------------------------------------------- ----- ----------- -----------
Interest received 3.3 0.1
----------------------------------------------------- ----- ----------- -----------
Net cash from operating activities 207.7 306.5
----------------------------------------------------- ----- ----------- -----------
Made up of:
----------------------------------------------------- ----- ----------- -----------
Net cash from continuing operating activities 207.7 322.9
----------------------------------------------------- ----- ----------- -----------
Net cash from discontinued operating activities - (16.4)
----------------------------------------------------- ----- ----------- -----------
Cash flows from investing activities
----------------------------------------------------- ----- ----------- -----------
Purchases of property, plant and equipment (163.9) (191.0)
----------------------------------------------------- ----- ----------- -----------
Purchases of intangible assets (10.8) (18.7)
----------------------------------------------------- ----- ----------- -----------
Proceeds from the sale of property, plant and
equipment 1.6 0.7
----------------------------------------------------- ----- ----------- -----------
Acquisition of businesses net of cash acquired (7.6) (203.5)
----------------------------------------------------- ----- ----------- -----------
Proceeds on disposal of subsidiary net of cash
disposed and costs of disposal - 183.7
----------------------------------------------------- ----- ----------- -----------
Net cash used in investing activities (180.7) (228.8)
----------------------------------------------------- ----- ----------- -----------
Made up of:
----------------------------------------------------- ----- ----------- -----------
Net cash used in continuing investing activities (180.7) (412.5)
----------------------------------------------------- ----- ----------- -----------
Net cash used in discontinued investing activities - 183.7
----------------------------------------------------- ----- ----------- -----------
Cash flows from financing activities
----------------------------------------------------- ----- ----------- -----------
Equity dividends paid 6 (78.9) (70.9)
----------------------------------------------------- ----- ----------- -----------
Contributions from non-controlling interests 1.3 6.5
----------------------------------------------------- ----- ----------- -----------
Acquisition of non-controlling interests without
a change in control (19.6) (21.5)
----------------------------------------------------- ----- ----------- -----------
Proceeds from issue of share capital 1.2 2.4
----------------------------------------------------- ----- ----------- -----------
Draw down of facilities 188.5 302.6
----------------------------------------------------- ----- ----------- -----------
Repayment of facilities (186.4) (256.3)
----------------------------------------------------- ----- ----------- -----------
Payment of principal of lease liabilities (18.0) (13.2)
----------------------------------------------------- ----- ----------- -----------
Net cash absorbed by financing activities (111.9) (50.4)
----------------------------------------------------- ----- ----------- -----------
Made up of:
----------------------------------------------------- ----- ----------- -----------
Net cash absorbed by continuing financing activities (111.9) (50.4)
----------------------------------------------------- ----- ----------- -----------
Net cash absorbed by discontinued financing
activities - -
----------------------------------------------------- ----- ----------- -----------
Net (decrease)/increase in cash and cash equivalents (84.9) 27.3
----------------------------------------------------- ----- ----------- -----------
Cash and cash equivalents at 1 January 317.4 289.8
----------------------------------------------------- ----- ----------- -----------
Effect of changes in foreign exchange rates 5.5 0.3
----------------------------------------------------- ----- ----------- -----------
Cash and cash equivalents at 31 December 238.0 317.4
----------------------------------------------------- ----- ----------- -----------
Non-cash transactions recognised in the Consolidated income
statement are reconciled to operating cash flow as part of the
disclosure provided in note 7. Further details of the cash flow
impact of exceptional items can be found in note 4.
1 Segmental reporting
Reportable segments are presented in a manner consistent with
internal reporting provided to the chief operating decision maker
which is considered to be the Board. The Group is organised into
three businesses, with a dedicated management team for each.
Central corporate and commercial functions provide certain
specialist and shared services, including optimisation of the
Group's positions. The Board reviews the performance of each of
these businesses separately, and each represents a reportable
segment:
Pellet Production: production and subsequent sale of biomass
pellets at the Group's processing facilities in North America;
Generation: power generation activities in the UK; and
Customers: supply of electricity and gas to non-domestic
customers in the UK.
Operating costs are allocated to the reportable segments to the
extent they are directly attributable to the activities of that
segment. Central corporate function costs that are not directly
attributable to the activities of a reportable segment are included
within Innovation, capital projects and other costs. Innovation,
capital projects and other costs is not a reportable segment as it
does not earn revenues.
When defining gross profit within the Consolidated financial
statements, the Group follows the principal trading considerations
applied by its Pellet Production, Generation and Customers
businesses when making a sale. In respect of the Pellet Production
business, this reflects the direct costs of production, being
fibre, fuel and drying costs, direct freight and port costs, or
third-party pellet purchases. In respect of Generation, this
reflects the direct costs of the commodities to generate the power
and the relevant grid connection costs that arise. In respect of
Customers, this reflects the direct costs of supply, being the
costs of the power or gas supplied, together with costs levied on
suppliers such as network costs, broker costs and renewables
incentive mechanisms.
Accordingly, cost of sales excludes indirect overheads and staff
costs (presented within operating and administrative expenses), and
depreciation (presented separately on the face of the Consolidated
income statement).
Seasonality of trading
The primary activities of the Group are affected by seasonality.
Demand in the UK for electricity and gas is typically higher in the
winter period (October to March) when temperatures are lower, and
thus drives higher prices and higher generation. Conversely, demand
is typically lower in the summer months (April to September) when
temperatures are milder, and therefore prices are generally
lower.
This trend is experienced by all of the Group's UK-based
businesses, as they operate within the UK electricity and gas
markets. It is most notable within the Generation business due to
its scale and the flexible operation of its thermal generation
plant.
The Pellet Production business incurs certain costs that are
higher in winter months due to the impact of weather conditions,
such as fibre drying costs and heating costs. Production volumes
and margins are typically higher in the summer months. The business
is protected from demand fluctuations as a result of seasonality by
regular production and dispatch schedules under its contracts with
customers, both intra-group and externally.
Segment revenues and results
The following is an analysis of the Group's performance by
reportable segment for the year ended 31 December 2022. Revenue for
each segment is split between sales to external parties and
inter-segment sales. Inter-segment sales are eliminated in the
intra-group eliminations column along with any adjustment required
for unrealised profits.
The financial information in these tables is comprised solely of
results from continuing operations. There were no amounts
attributable to discontinued operations in the year ended 31
December 2022. Adjusted EBITDA by reportable segment is presented
in note 4.
Year ended 31 December 2022
-----------------------------------------------------------------------------------------------------
Innovation, Exceptional
capital items
Pellet projects Intra-group Adjusted and certain Total
Production Generation Customers and other eliminations results remeasurements results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Revenue
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
External sales 377.2 3,638.9 4,143.1 - - 8,159.2 (383.9) 7,775.3
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Inter-segment
sales 425.4 3,719.3 - - (4,144.7) - - -
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Total revenue 802.6 7,358.2 4,143.1 - (4,144.7) 8,159.2 (383.9) 7,775.3
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Cost of sales (501.9) (6,479.2) (3,985.0) - 4,128.4 (6,837.7) 85.7 (6,752.0)
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Segment gross
profit/(loss) 300.7 879.0 158.1 - (16.3) 1,321.5 (298.2) 1,023.3
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Operating and
administrative
expenses (167.3) (183.5) (84.3) (113.6) 5.9 (542.8) - (542.8)
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Impairment
losses on
financial
assets - - (48.0) - - (48.0) - (48.0)
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Depreciation
and
amortisation (119.9) (98.6) (25.5) (3.3) 7.9 (239.4) - (239.4)
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Impairment of
non-current
assets - (16.6) - - - (16.6) (24.9) (41.5)
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Other losses (2.0) (3.8) - - - (5.8) - (5.8)
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Income from
associates 0.5 - - - - 0.5 - 0.5
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Operating
profit/(loss) 12.0 576.5 0.3 (116.9) (2.5) 469.4 (323.1) 146.3
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Further information on the main revenue streams of each segment
is presented in note 2.
The impact of exceptional items and certain remeasurements is
set out in note 4.
The following is an analysis of the Group's performance by
reportable segment for the year ended 31 December 2021:
Year ended 31 December 2021
-----------------------------------------------------------------------------------------------------
Innovation, Exceptional
capital items
Pellet projects Intra-group Adjusted and certain Total
Production Generation Customers and other eliminations results remeasurements results
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Revenue
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
External sales 163.1 2,651.2 2,359.6 - - 5,173.9 (85.9) 5,088.0
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Inter-segment
sales 286.7 2,031.1 - - (2,317.8) - - -
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Total revenue 449.8 4,682.3 2,359.6 - (2,317.8) 5,173.9 (85.9) 5,088.0
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Cost of sales (267.0) (4,131.9) (2,255.9) - 2,323.7 (4,331.1) 134.3 (4,196.8)
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Segment gross
profit 182.8 550.4 103.7 - 5.9 842.8 48.4 891.2
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Operating and
administrative
expenses (96.9) (198.9) (81.7) (70.9) - (448.4) (21.5) (469.9)
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Impairment
losses on
financial
assets - - (16.3) - - (16.3) - (16.3)
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Depreciation
and
amortisation (61.4) (103.4) (30.5) (3.6) - (198.9) (0.5) (199.4)
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Other losses (1.0) (7.8) (0.4) (0.2) - (9.4) - (9.4)
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Income from
associates 0.3 - - - - 0.3 - 0.3
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Operating
profit/(loss) 23.8 240.3 (25.2) (74.7) 5.9 170.1 26.4 196.5
--------------- ----------- ---------- --------- ----------- ------------- --------- --------------- ---------
Adjusted operating profit from discontinued operations for the
year ended 31 December 2021 was GBP20.3 million. This amount was
attributable entirely to the Generation segment.
The accounting policies applied for the purpose of measuring the
reportable segments' profits or losses, assets and liabilities are
the same as those used in measuring the corresponding amounts in
the Consolidated financial statements.
Capital expenditure by reportable segment
Assets and working capital are monitored on a consolidated
basis; however, capital expenditure is monitored by reportable
segment.
Year ended 31 December
---------------------------------------------------
Additions to intangible Additions to property,
assets plant and equipment
--------------------------------------- ------------------------- ------------------------
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
--------------------------------------- ------------ ----------- ----------- -----------
Pellet Production - 8.2 66.0 108.6
--------------------------------------- ------------ ----------- ----------- -----------
Generation 2.8 3.4 171.5 103.2
--------------------------------------- ------------ ----------- ----------- -----------
Customers 2.3 8.9 0.3 0.1
--------------------------------------- ------------ ----------- ----------- -----------
Innovation, capital projects and other 4.3 1.8 8.2 3.6
--------------------------------------- ------------ ----------- ----------- -----------
Total 9.4 22.3 246.0 215.5
--------------------------------------- ------------ ----------- ----------- -----------
Total cash outflows in relation to capital expenditure during
the year for continuing operations were GBP174.7 million (2021:
GBP209.7 million). In 2022, the cash outflow in relation to
property, plant and equipment is lower than the cost capitalised in
property, plant and equipment predominantly as a result of GBP64.6
million (2021: GBPnil) of deferred letters of credits issued in
relation to the construction of the OCGT assets.
Intra-group trading
Intra-group transactions are carried out at management's best
estimate of arm's-length, commercial terms that, where possible,
equate to market prices. During 2022, the Pellet Production segment
sold biomass pellets and provided associated services with a total
value of GBP425.4 million (2021: GBP286.7 million) to the
Generation segment and the Generation segment sold electricity, gas
and renewable energy certificates with a total value of GBP3,719.3
million (2021: GBP2,031.1 million) to the Customers segment.
The impact of all intra-group transactions, including any
unrealised profit arising, is eliminated on consolidation.
Major customers
There was no individual customer, in either the current or
previous financial year, that represented 10% or more of total
revenue.
Geographical analysis of revenue and non-current assets
The geographic information analyses the Group's revenue and
non-current assets by the entity's country of domicile. In
presenting the geographic information, segment revenue has been
based on the geographic location of customers and segment assets
were based on the geographic location of the assets.
The Group's revenue and non-current assets for the Generation
and Customers segments are all UK based. The Group's Pellet
Production segment has third-party pellet sales to both the UK and
other locations around the world. The Pellet Production segment's
non-current assets are located in North America, in both Canada and
the US.
Revenue from continuing
operations
(based on location
of customer)
--------------------------
31 December 31 December
2022 2021
GBPm GBPm
------------------------------ ----------- -------------
North America (Canada and US) 10.6 11.5
------------------------------ ----------- -------------
Europe 27.6 39.1
------------------------------ ----------- -------------
Asia 275.4 93.0
------------------------------ ----------- -------------
UK 7,461.7 4,944.4
------------------------------ ----------- -------------
Total 7,775.3 5,088.0
------------------------------ ----------- -------------
Non-current assets(1)
(based on asset's
location)
------------------------
31 December 31 December
2022 2021
GBPm GBPm
------- ----------- -----------
Canada 542.6 513.6
------- ----------- -----------
US 502.6 473.8
------- ----------- -----------
UK 2,054.5 2,053.5
------- ----------- -----------
Total 3,099.7 3,040.9
------- ----------- -----------
(1) Non-current assets comprise goodwill, intangible assets,
property, plant and equipment, right-of-use assets and
investments.
2 Revenue
The majority of the Group's revenue is within the scope of IFRS
15. The other sources of the Group's revenue outside the scope of
IFRS 15 comprise certain remeasurements, amounts reclassified to
revenue for gains and losses on UK CPI inflation swaps and income
from the Government's Energy Bill Relief Scheme (EBRS). See note 4
for further details of certain remeasurements.
Year ended 31 December Year ended 31 December
2022 2021
----------------------------------- -----------------------------------
Exceptional Exceptional
items items
and and
Adjusted certain Total Adjusted certain Total
results remeasurements results results remeasurements results
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- -------- --------------- -------- -------- --------------- --------
Revenue from contracts with customers 7,882.5 - 7,882.5 5,170.3 - 5,170.3
-------------------------------------- -------- --------------- -------- -------- --------------- --------
Other revenue 276.7 (383.9) (107.2) 3.6 (85.9) (82.3)
-------------------------------------- -------- --------------- -------- -------- --------------- --------
Total revenue 8,159.2 (383.9) 7,775.3 5,173.9 (85.9) 5,088.0
-------------------------------------- -------- --------------- -------- -------- --------------- --------
Accounting policy
Revenue represents amounts receivable for goods or services
provided to customers in the normal course of business, net of
trade discounts, VAT and other sales-related taxes and excludes
transactions between Group companies. Revenue is presented gross in
the Consolidated income statement when the Group controls the
specified good or service prior to the transfer to the
customer.
A summary of the Group's principal revenue streams, along with
the nature and timing of performance obligations, payment terms,
methods of recognising revenue, and any estimation uncertainties,
is given in the table below. Further details on significant
elements of revenue, principally how the Contract for Difference
(CfD) and Renewable Obligation (RO) schemes operate and the related
accounting, are provided below the table.
Nature and timing of performance
Revenue stream obligations, including significant Method of recognising revenue,
(Segment) payment terms including any estimation uncertainties
---------------------- ------------------------------------- ---------------------------------------
Pellet sales The Group produces biomass Revenue is recognised at the
(Pellet Production) pellets which are sold to point that the pellets are
external customers. Customers loaded onto the shipping vessel.
generally obtain control The amount of revenue recognised
of the pellets at the point is based on the contracted
the pellets are loaded onto price of the pellets.
the shipping vessel for freight
on board (FOB) sales. For CIF sales, revenue for
the freight portion is recognised
Where freight is also arranged over the period the vessel
for the customer, these sales sails.
are known as Cost, insurance
and freight (CIF) sales.
The freight component is
considered a separate performance
obligation.
Invoices are raised in line
with contractual terms and
are usually payable within
four-10 days.
---------------------- ------------------------------------- ---------------------------------------
Electricity sales The Group's Generation business Revenues are measured based
(Generation) has contracts for wholesale upon metered output at rates
electricity sales. Performance specified under contract terms
obligations for these contracts or prevailing market rates
are deemed to be a series as applicable. These are recognised
of distinct goods that are under the output method, whereby
substantially the same and revenue is recognised based
transfer consecutively. Control on the value transferred to
is deemed to have passed the customer.
to the customer at the point
that the electricity has
been supplied. This is measured
based on energy supplied
to the customer with the
amount billed based on the
units of electricity supplied.
Invoices are raised in line
with the Grid Trade Master
Agreement (GTMA) contractual
terms and are payable on
the fifth banking day following
the date of invoice.
---------------------- ------------------------------------- ---------------------------------------
Renewable certificate Renewable Obligation Certificates External ROC and REGO sales
sales (ROCs) and Renewable Energy are recognised at the point
(Generation) Guarantees of Origins (REGOs) the relevant certificates
are sold to counterparties are transferred to the counterparty.
at a point in time.
ROCs sold to optimise working
capital are invoiced in line
with contractual terms and
are usually payable within
two days.
Invoices for ROC sales to
third parties are raised
when the ROCs are transferred,
typically four-five months
following the end of the
compliance period in which
they were generated. Invoices
are usually payable within
seven days.
---------------------- ------------------------------------- ---------------------------------------
CfD income/payment The Group is party to a CfD The Group recognises the income
(Generation) with the Low Carbon Contracts or costs arising from the
Company (LCCC), a Government-owned CfD in the Consolidated income
entity responsible for delivering statement as a component of
elements of the Government's revenue at the point the Group
Electricity Market Reform meets its performance obligation
Programme. Under the contract, under the CfD contract. This
the Group makes or receives is considered to be the point
payments in respect of electricity at which the relevant generation
dispatched from a specific is delivered and the payment
biomass-fuelled generating becomes contractually due.
unit.
Invoices are raised seven
days following the date of
supply and are settled within
10-28 days.
---------------------- ------------------------------------- ---------------------------------------
Ancillary services Ancillary services refers Revenue is recognised by reference
(Generation) to the provision of a range to the stage of completion
of system support services of the contractual performance
to National Grid. Most contracts obligations, which are calculated
are for the delivery of a by reference to the amount
specific service either continually of the contract term that
or on an ad-hoc basis over has elapsed.
a period of time.
Depending on contract terms,
Invoices are raised and subsequently this approach may require
settled in line with National judgement in estimating probable
Grid Company Ancillary Services future outcomes.
settlement calendar, typically
monthly.
---------------------- ------------------------------------- ---------------------------------------
Other income Other income is derived from Revenue is recognised at the
(All segments) the sale of goods (for example, point the control of the goods
by-products from electricity is transferred to the customer.
generation such as ash and
gypsum) or the provision
of services. The customer
obtains control typically
at the point of delivery
to their premises or upon
collection.
---------------------- ------------------------------------- ---------------------------------------
Electricity and The Group's Customers business Revenue is recognised on the
gas sales (Customers) sells electricity and gas supply of electricity or gas
directly to business customers. when a contract exists, supply
Energy supplied is measured has taken place, a quantifiable
based upon metered consumption price has been established
and contractual rates. or can be determined and the
amounts receivable are expected
The Customers business also to be recovered.
has long-term contracts for
the sale of electricity and Where supply has taken place
gas, which are deemed as but has not yet been measured
being satisfied over time or billed, revenue is estimated
in line with the progress based on consumption statistics
of the contracts. and selling price estimates
and is recognised as accrued
Invoices are raised in line income. This estimate is not
with contractual terms. For considered to be a key source
small and medium-sized enterprise of estimation uncertainty
(SME) customers, payment because historical experience
is generally due within 10-14 has demonstrated that these
days. For Industrial and estimates are materially accurate
Commercial (I&C) customers, based on the subsequent billings
payment is generally due and settlements.
between 28-90 days.
Where contracts for the sale
of electricity and gas are
held, revenue is recognised
in line with the progress
of the contracts.
The revenue recognised per
unit of energy supplied is
based on the total estimated
revenue and cost inputs for
fixed price contracts and
contracted prices for variable
price contracts. Assumptions
are applied consistently but
third-party costs can vary,
therefore actual outcomes
may vary from initial estimates.
---------------------- ------------------------------------- ---------------------------------------
EBRS income The UK Government introduced The discounted price of electricity
(Customers) the EBRS, running from 1 and gas supplied under the
October 2022 to 31 March EBRS is recognised in revenue
2023. Energy supplied to as it is supplied. The discount
non-domestic customers in amount claimed back from the
this period will have a UK Government is recognised
discount applied for the within revenue over the same
customer under the scheme period as the underlying discounted
to cap their energy tariff. revenue it relates to is recognised.
The Customers business is
claiming this discount back The revenue received from
from the Government. the UK Government is included
within EBRS income. The Group
Payment is due 10 days post does not recognise any additional
submission of a claim, which revenue from the scheme than
typically occurs monthly. it would have done if it were
not introduced.
---------------------- ------------------------------------- ---------------------------------------
Renewable certificate sales
The generation and sale of renewable certificates, primarily
ROCs and REGOs, is a key driver of the Group's financial
performance.
The Renewable Obligation (RO) scheme places an obligation on
electricity suppliers to source an increasing proportion of their
electricity from renewable sources. Under the RO scheme, ROCs are
certificates issued to generators of renewable electricity which
are then sold bilaterally to counterparties, including suppliers,
to demonstrate that they have fulfilled their obligations under the
RO scheme. ROCs are managed in compliance periods (CPs), running
from April to March annually. CP1 commenced in April 2002. At 31
December 2022 the Group is operating in CP21.
To meet its obligations a supplier can either submit ROCs or pay
the buy-out price at the end of the CP. The buy-out price rises
annually in line with the UK Retail Price Index (RPI). The buy-out
price for CP21 is GBP52.88 (2021: CP20 GBP50.80). ROCs are
typically procured in arm's-length transactions with renewable
generators at a market price slightly lower than the buy-out price
for that CP. At the end of the CP, the amounts collected from
suppliers paying the buy-out price form the recycle fund, which is
distributed on a pro-rata basis to the suppliers who presented ROCs
during a CP.
The financial benefit of a ROC recognised in the Consolidated
income statement at the point of generation is comprised of two
parts: the expected value to be obtained in a sale transaction with
a third-party supplier relating to the buy-out price, and the
expected value of the recycle fund benefit to be received at the
end of the CP. During the year, the Group also made sales and
related purchases of ROCs to help optimise its working capital
position.
External sales of ROCs in the table below includes GBP604.5
million of such sales (2021: GBP339.8 million), with a similar
value reflected in cost of sales.
REGOs are certificates that enable suppliers to prove that
energy supplied to their customers came from a renewable source.
One REGO is issued to a generator for every MWh of renewable energy
they generate.
CfD income/payment
The payment is calculated by reference to a strike price per
MWh. The base year for the strike price was 2012 and it increases
each year in line with the UK Consumer Price Index (CPI) and
changes in system balancing costs. The strike price at 31 December
2022 was GBP126.37 per MWh (2021: GBP118.54).
When market prices (based on average traded prices in the
preceding season) are above or below the strike price, the Group
makes an additional payment to or receives additional income from
LCCC equivalent to the difference between that market power price
and the strike price, for each MWh produced from the relevant
generating unit. Such payments are in addition to amounts received
from the sale of the associated power in the wholesale market.
Gas sales
To support the Group's ambition to be carbon negative by 2030, a
decision was made in January 2023 to phase out the Group's gas
supply contracts in the Opus Energy part of the Customers business.
Having already ceased acquiring new gas customers, following
internal processes and a regulatory driven 60-day grace period, no
renewal contracts will be offered after May 2023. It is anticipated
that the portfolio will reduce by over 50% by the end of 2023 and
be almost entirely gone by the end of 2024.
Further analysis of revenue for the year ended 31 December 2022
is provided in the table below:
Year ended 31 December
2022
----------------------------------
External Inter-segment Total
GBPm GBPm GBPm
----------------------------------------------- -------- ------------- ---------
Pellet Production
----------------------------------------------- -------- ------------- ---------
Pellet sales 369.3 425.2 794.5
----------------------------------------------- -------- ------------- ---------
Other income 7.9 0.2 8.1
----------------------------------------------- -------- ------------- ---------
Total Pellet Production 377.2 425.4 802.6
----------------------------------------------- -------- ------------- ---------
Generation
----------------------------------------------- -------- ------------- ---------
Electricity sales 2,633.1 3,293.3 5,926.4
----------------------------------------------- -------- ------------- ---------
Renewable certificate sales 851.5 426.0 1,277.5
----------------------------------------------- -------- ------------- ---------
CfD payment (45.7) - (45.7)
----------------------------------------------- -------- ------------- ---------
Ancillary services 73.0 - 73.0
----------------------------------------------- -------- ------------- ---------
Other income 127.0 - 127.0
----------------------------------------------- -------- ------------- ---------
Total Generation 3,638.9 3,719.3 7,358.2
----------------------------------------------- -------- ------------- ---------
Customers
----------------------------------------------- -------- ------------- ---------
Electricity and gas sales 3,853.1 - 3,853.1
----------------------------------------------- -------- ------------- ---------
EBRS income 289.2 - 289.2
----------------------------------------------- -------- ------------- ---------
Other income 0.8 - 0.8
----------------------------------------------- -------- ------------- ---------
Total Customers 4,143.1 - 4,143.1
----------------------------------------------- -------- ------------- ---------
Elimination of inter-segment sales - (4,144.7) (4,144.7)
----------------------------------------------- -------- ------------- ---------
Total consolidated revenue in Adjusted results 8,159.2 - 8,159.2
----------------------------------------------- -------- ------------- ---------
Certain remeasurements (383.9) - (383.9)
----------------------------------------------- -------- ------------- ---------
Total consolidated revenue in Total results 7,775.3 - 7,775.3
----------------------------------------------- -------- ------------- ---------
Certain remeasurements losses of GBP383.9 million (2021: GBP85.9
million) is comprised of gains and losses on derivative contracts
that are used to manage risk exposures associated with the Group's
revenue, not designated into hedge accounting relationships under
IFRS 9.
Revenue recognised in the period that was included within
contract liabilities at the start of the year was GBP6.6 million
(2021: GBP5.4 million).
Revenue recognised in the period from performance obligations
satisfied or partly satisfied in the previous period was GBPnil in
the current and previous financial year.
Electricity sales in the Generation segment were net of a GBP6.1
million payment to a Voluntary Energy Redress Fund.
The following is an analysis of the Group's revenues for the
year ended 31 December 2021:
Year ended 31 December
2021
----------------------------------
External Inter-segment Total
GBPm GBPm GBPm
----------------------------------------------- -------- ------------- ---------
Pellet Production
----------------------------------------------- -------- ------------- ---------
Pellet sales 157.4 286.5 443.9
----------------------------------------------- -------- ------------- ---------
Other income 5.7 0.2 5.9
----------------------------------------------- -------- ------------- ---------
Total Pellet Production 163.1 286.7 449.8
----------------------------------------------- -------- ------------- ---------
Generation
----------------------------------------------- -------- ------------- ---------
Electricity sales 1,790.2 1,688.5 3,478.7
----------------------------------------------- -------- ------------- ---------
Renewable certificate sales 538.6 342.6 881.2
----------------------------------------------- -------- ------------- ---------
CfD income 234.9 - 234.9
----------------------------------------------- -------- ------------- ---------
Ancillary services 50.6 - 50.6
----------------------------------------------- -------- ------------- ---------
Other income 36.9 - 36.9
----------------------------------------------- -------- ------------- ---------
Total Generation 2,651.2 2,031.1 4,682.3
----------------------------------------------- -------- ------------- ---------
Customers
----------------------------------------------- -------- ------------- ---------
Electricity and gas sales 2,358.9 - 2,358.9
----------------------------------------------- -------- ------------- ---------
Other income 0.7 - 0.7
----------------------------------------------- -------- ------------- ---------
Total Customers 2,359.6 - 2,359.6
----------------------------------------------- -------- ------------- ---------
Elimination of inter-segment sales - (2,317.8) (2,317.8)
----------------------------------------------- -------- ------------- ---------
Total consolidated revenue in Adjusted results 5,173.9 - 5,173.9
----------------------------------------------- -------- ------------- ---------
Certain remeasurements (85.9) - (85.9)
----------------------------------------------- -------- ------------- ---------
Total consolidated revenue in Total results 5,088.0 - 5,088.0
----------------------------------------------- -------- ------------- ---------
The Group is eligible for, and applies, the practical expedient
available under IFRS 15 and has not disclosed information related
to the transaction price allocated to remaining performance
obligations. The right to receive consideration from a customer is
at an amount that corresponds directly with the value to the
customer of the Group's performance completed to date.
3 Current and deferred tax
The tax credit or charge includes both current and deferred tax.
It reflects the estimated tax on the profit before tax for the
Group for the year ended 31 December 2022 and the movement in the
deferred tax balance in the year, so far as it relates to items
recognised in the Consolidated income statement, in line with IAS
12.
Accounting policy
Current tax includes UK corporation tax, corporate income tax in
Canada and US income tax. It is based on the taxable profit or loss
for the year in the relevant jurisdiction. Taxable profit or loss
differs from profit or loss before tax as reported in the
Consolidated income statement, because it excludes items of income
or expenditure that are either taxable or deductible in other years
or never taxable or deductible. The Group's liability (or asset)
for current tax is provided at amounts expected to be paid (or
recovered) using the tax rates and laws that have been enacted or
substantively enacted by the reporting date.
A provision is made for those matters for which the tax
determination is uncertain, but it is considered probable that
there will be a future outflow of funds to a tax authority. The
provisions are measured at the best estimate of the amount expected
to become payable. The assessment is based on the judgement of tax
professionals within the Group supported by previous experience in
respect of such activities and in certain cases is based on
specialist independent tax advice. No uncertain tax provisions have
been recognised in the current or prior year.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised.
Current and deferred taxes are credited or charged against
profit or loss in the Consolidated income statement, except when
they relate to items that are recognised in OCI or directly in
equity, in which case the current and deferred taxes are recognised
in the Consolidated statement of comprehensive income or directly
in the Consolidated statement of changes in equity
respectively.
The Group has utilised the relief available under the Research
and Development expenditure credit regime (RDEC). Under this
regime, research and development tax credits are accounted for as
development grants in line with IAS 20 and are recorded in
operating profit within the Consolidated income statement. The
credit is subject to corporation tax with the corresponding
receivable offset against total corporation tax payable.
In accounting for tax, the Group makes assumptions regarding the
treatment of items of income and expenditure for tax purposes. The
Group believes that these assumptions are reasonable, based on
prior experience and consultation with advisers. These assumptions
are consistent with other assumptions used in these financial
statements. Full provision is made for deferred tax at the rates of
tax prevailing at the reporting date unless future rates have been
substantively enacted. Deferred tax assets are recognised where it
is considered more likely than not that they will be recovered. The
recoverability of the deferred tax asset is considered an estimate
as it relies on the future profitability of the Group's
businesses.
Year ended 31 December
------------------------
2022 2021
GBPm GBPm
----------------------------------------------------- ----------- -----------
Total tax credit/(charge) from continuing operations
comprises:
----------------------------------------------------- ----------- -----------
Current tax
----------------------------------------------------- ----------- -----------
- Current year (66.0) (7.7)
----------------------------------------------------- ----------- -----------
- Adjustments in respect of prior periods 1.9 (1.4)
----------------------------------------------------- ----------- -----------
Deferred tax
----------------------------------------------------- ----------- -----------
- Before impact of tax rate changes 61.9 (7.3)
----------------------------------------------------- ----------- -----------
- Adjustments in respect of prior periods (0.1) (1.0)
----------------------------------------------------- ----------- -----------
- Effect of changes in tax rate 6.7 (49.0)
----------------------------------------------------- ----------- -----------
Total tax credit/(charge) 4.4 (66.4)
----------------------------------------------------- ----------- -----------
Year ended 31 December
------------------------
2022 2021
GBPm GBPm
--------------------------------------------------------- ----------- -----------
Tax credited/(charged) on items recognised in other
comprehensive income:
--------------------------------------------------------- ----------- -----------
Deferred tax on remeasurement of defined benefit pension
scheme 6.1 (7.2)
--------------------------------------------------------- ----------- -----------
Deferred tax on share-based payments - 5.4
--------------------------------------------------------- ----------- -----------
Deferred tax on cash flow hedges (5.6) 41.2
--------------------------------------------------------- ----------- -----------
Deferred tax on cost of hedging 2.2 (7.7)
--------------------------------------------------------- ----------- -----------
Total tax credit 2.7 31.7
--------------------------------------------------------- ----------- -----------
Year ended 31 December
------------------------
2022 2021
GBPm GBPm
------------------------------------------------------- ----------- -----------
Tax credited/(charged) on items released directly from
equity:
------------------------------------------------------- ----------- -----------
Deferred tax on cost of hedging 7.2 5.4
------------------------------------------------------- ----------- -----------
Deferred tax on cash flow hedges 4.8 (7.5)
------------------------------------------------------- ----------- -----------
Deferred tax on share-based payments 7.4 -
------------------------------------------------------- ----------- -----------
Total tax credit/(charge) 19.4 (2.1)
------------------------------------------------------- ----------- -----------
UK corporation tax is the main income tax for the Group and is
calculated at 19% (2021: 19%) of the assessable profit or loss for
the year.
Due to the Group's overseas operations, the US income tax rate
of 21% (2021: 21%) and the Canadian corporate income tax rate of
27% (2021: 27%) are also relevant to the Group's tax charge.
The tax rate for the full year, before the impact of changes in
tax rates, is lower than the standard corporation tax rate
applicable in the UK, principally due to the tax benefit arising
from UK Patent Box claims and the UK super-deduction introduced in
the Finance Act 2021, which allows for a 130% in-year deduction for
tax purposes against the cost of qualifying capital expenditure on
plant and machinery incurred between 1 April 2021 and 31 March
2023.
Drax Power Limited was granted a patent to protect certain
intellectual property it owns and which attaches to the technology
developed to manage the combustion process in generating
electricity from biomass. Under UK tax legislation, the company is
entitled to apply a lower tax rate of 10% to profits derived from
utilisation of the patented technology.
The Finance Act 2021 also contained legislation to increase the
main rate of UK corporation tax from 19% to 25% with effect from 1
April 2023. The impact of this rate increase is a net GBP6.7
million deferred tax credit through Total results in the
Consolidated income statement (2021: GBP49.0 million charge).
The Group tax charge for the year can be reconciled to the
profit before tax as follows:
Year ended 31 December Year ended 31 December
2022 2021
----------------------------------- -----------------------------------
Exceptional Exceptional
items items
Adjusted and certain Total Adjusted and certain Total
results remeasurements results results remeasurements results
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- -------- --------------- -------- -------- --------------- --------
Profit/(loss) before tax
from continuing operations 405.4 (327.3) 78.1 100.5 21.0 121.5
---------------------------- -------- --------------- -------- -------- --------------- --------
Profit/(loss) before tax
multiplied by the rate of
corporation tax in the UK
of 19% (2021: 19%) 77.0 (62.2) 14.8 19.2 4.0 23.2
---------------------------- -------- --------------- -------- -------- --------------- --------
Effects of:
---------------------------- -------- --------------- -------- -------- --------------- --------
Adjustments in respect of
prior periods (1.8) - (1.8) 2.4 - 2.4
---------------------------- -------- --------------- -------- -------- --------------- --------
Expenses not deductible for
tax purposes 4.5 - 4.5 2.8 1.7 4.5
---------------------------- -------- --------------- -------- -------- --------------- --------
Impact of tax rate change 2.9 (9.6) (6.7) 0.4 48.6 49.0
---------------------------- -------- --------------- -------- -------- --------------- --------
Difference in overseas tax
rates (1.3) - (1.3) (1.1) - (1.1)
---------------------------- -------- --------------- -------- -------- --------------- --------
Patent Box benefit (9.6) - (9.6) (8.0) - (8.0)
---------------------------- -------- --------------- -------- -------- --------------- --------
Tax effect of RDEC credit (0.8) - (0.8) (0.9) - (0.9)
---------------------------- -------- --------------- -------- -------- --------------- --------
UK super-deduction (3.5) - (3.5) (2.7) - (2.7)
---------------------------- -------- --------------- -------- -------- --------------- --------
Total tax charge/(credit) 67.4 (71.8) (4.4) 12.1 54.3 66.4
---------------------------- -------- --------------- -------- -------- --------------- --------
The movements in deferred tax assets and liabilities during each
year are shown below.
Accelerated
Financial capital Non-trade Intangible Trade Other Other
instruments allowances losses assets losses liabilities assets Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
At 1 January 2021 13.0 (183.0) 2.3 (15.7) 33.5 (23.3) 16.5 (156.7)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
(Charged)/credited to
the income statement (5.6) (64.4) - (3.5) 11.7 5.4 (0.9) (57.3)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Charged to other
comprehensive
income in respect of
actuarial gains - - - - - - (7.2) (7.2)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Credited to other
comprehensive
income in respect of
share-based payments - - - - - - 5.4 5.4
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Credited to other
comprehensive
income in respect of
cash flow hedges 41.2 - - - - - - 41.2
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Charged to other
comprehensive
income in respect of
cost of hedging (7.7) - - - - - - (7.7)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Charged to equity in
respect of cash flow
hedges (7.5) - - - - - - (7.5)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Credited to equity in
respect of cost of hedging 5.4 - - - - - - 5.4
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Impact of acquisition - (44.7) - (0.6) 14.4 (0.8) 19.6 (12.1)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Effect of changes in
foreign exchange rates - (0.5) - (0.1) 0.4 - 0.1 (0.1)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
At 1 January 2022 38.8 (292.6) 2.3 (19.9) 60.0 (18.7) 33.5 (196.6)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Credited/(charged)to
the income statement 77.3 (24.9) (1.8) 7.0 15.7 (20.7) 16.0 68.6
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Credited to other
comprehensive
income in respect of
actuarial gains - - - - - 6.1 - 6.1
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Charged to other
comprehensive
income in respect of
cash flow hedges (5.6) - - - - - - (5.6)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Credited to other
comprehensive
income in respect of
cost of hedging 2.2 - - - - - - 2.2
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Credited to equity in
respect of cash flow
hedges 4.8 - - - - - - 4.8
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Credited to equity in
respect of cost of hedging 7.2 - - - - - - 7.2
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Credited to equity in
respect of share -- based
payments - - - - - - 7.4 7.4
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Impact of acquisition - (0.8) - - - - - (0.8)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Effect of changes in
foreign exchange rates - (3.0) - - 4.4 - 1.0 2.4
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
At 31 December 2022 124.7 (321.3) 0.5 (12.9) 80.1 (33.3) 57.9 (104.3)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Deferred tax balances
(after offset)
for financial reporting
purposes:
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Net Canadian deferred
tax asset at 31 December
2022 - (49.6) - 0.2 27.1 (1.0) 32.7 9.4
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Net US deferred tax
asset 31 December 2022 - (30.6) - - 53.0 - 5.5 27.9
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Net UK deferred tax
liability 31 December
2022 124.7 (241.1) 0.5 (13.1) - (32.3) 19.7 (141.6)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Net Canadian deferred
tax asset at 31 December
2021 - (38.1) - (0.2) 17.5 (0.4) 26.6 5.4
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Net US deferred tax asset
31 December 2021 - (27.6) - - 42.5 (0.3) 8.7 23.3
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Net UK deferred tax
liability
31 December 2021 38.8 (226.9) 2.3 (19.7) - (18.0) (1.8) (225.3)
--------------------------- ------------ ----------- --------- ---------- ------- ------------ ------- -------
Deferred tax assets and liabilities are offset where the Group
has a legally enforceable right to do so, otherwise they are shown
separately in the Consolidated balance sheet. Within the above
trade losses deferred tax asset of GBP80.1 million (2021: GBP60.0
million) there is GBP53.0 million (2021: GBP42.5 million) in
relation to losses in the US Pellet Production business. The
remaining GBP27.1 million relates to losses of the Canadian Pellet
Production business (2021: GBP17.5 million).
The future expected reversal of accelerated capital allowances
and other timing differences, coupled with the profitability
(inclusive of the impact of transfer pricing adjustments), stable
output and forecast improvement in operational performance, mean
that the US and Canadian businesses expect to generate sufficient
profits in the short to medium term against which to utilise the
deferred tax assets. The estimates used when assessing the future
profitability of the US and Canadian businesses have been approved
by the Board and are consistent with estimates used in the going
concern assessment and in the Viability statement.
As at 31 December 2022 the Group held GBP79.2 million (2021:
GBP79.2 million) of UK capital losses available for offset against
future chargeable gains. These losses are unrecognised for deferred
tax purposes as the Group does not currently expect UK taxable
gains to arise that would be eligible to offset against these
losses.
4 Alternative performance measures
The Alternative Performance Measures (APMs) glossary provides
details of all APMs used, each APM's closest IFRS equivalent, the
reason why the APM is used by the Group and a definition of how
each APM is calculated.
The Group presents Adjusted results in the Consolidated income
statement. The Directors believe that this approach is useful as it
provides a clear and consistent view of underlying trading
performance. Certain remeasurements and exceptional items are
excluded from Adjusted results and presented in a separate column.
The Group believes that this presentation provides useful
information about the financial performance of the business and is
consistent with the way Executive management and the Board assess
the performance of the business.
The Group has a policy and framework for the determination of
transactions to present as exceptional. All transactions presented
as exceptional are approved by the Audit Committee.
In these Consolidated financial statements, the following
transactions have been designated as exceptional items and
presented separately:
-- Impairment charges incurred on the application of the Group's
new accounting policy for SaaS costs, consistent with the IFRIC
agenda decision (2022, All segments), and on costs associated with
the Customers billing system (2022, Customers).
-- Costs associated with the acquisition and integration of
Pinnacle (2021, Pellet Production).
-- Costs relating to the restructuring of the Customers business (2021, Customers).
-- Operating expenditure which was incurred as a direct result
of the decision to cease commercial coal generation (2021,
Generation).
-- Impact of UK tax rate change on deferred tax balances (2022
and 2021, Generation and Customers). See note 3 for further
information.
Certain remeasurements comprise gains or losses on derivative
contracts to the extent that those contracts do not qualify for
hedge accounting, or hedge accounting is not effective, and those
gains or losses are either i) unrealised and relate to derivative
contracts with a maturity in future periods, or ii) are realised in
relation to the maturity of derivative contracts in the current
period. The effect of excluding certain remeasurements from
Adjusted results is to reflect commodity sales and purchases at
contracted prices i.e. at the all-in-hedged amount paid or received
in respect of the delivery of the commodity in question, and
financial contracts in the period they are intended to hedge, to
present a clear and consistent review of the trading performance of
the Group in Adjusted results.
Volatility in financial and commodity markets has continued in
2022, in part due to the conflict in Ukraine. This has resulted in
significant movements in the remeasurement gains and losses on
certain derivative financial instruments which do not qualify for
hedge accounting, or where hedge accounting is ineffective, as
shown in the table below, principally relating to gas, certain
foreign currency contracts, inflation and oil.
Year ended 31 December
------------------------
2022 2021 (1)
GBPm GBPm
-------------------------------------------------------- ----------- -----------
Exceptional items:
-------------------------------------------------------- ----------- -----------
Inventory provision as a result of coal closure - (0.3)
-------------------------------------------------------- ----------- -----------
Acquisition costs - (7.9)
-------------------------------------------------------- ----------- -----------
Restructuring costs - (5.2)
-------------------------------------------------------- ----------- -----------
Integration costs - (4.1)
-------------------------------------------------------- ----------- -----------
Coal closure costs - (4.8)
-------------------------------------------------------- ----------- -----------
Impairment of non-current assets (24.9) -
-------------------------------------------------------- ----------- -----------
Exceptional items included within operating profit
and profit before tax (24.9) (22.3)
-------------------------------------------------------- ----------- -----------
Tax on exceptional items 4.7 2.5
-------------------------------------------------------- ----------- -----------
Impact of tax rate change (9.8) (50.2)
-------------------------------------------------------- ----------- -----------
Exceptional items after tax (30.0) (70.0)
-------------------------------------------------------- ----------- -----------
Certain remeasurements:
-------------------------------------------------------- ----------- -----------
Net fair value remeasurements on derivative contracts
included in revenue (441.4) (77.0)
-------------------------------------------------------- ----------- -----------
Net remeasurements realised on maturity of derivative
contracts included in revenue 107.7 (8.9)
-------------------------------------------------------- ----------- -----------
Net hedge ineffectiveness reclassified to profit or
loss included in revenue (50.2) -
-------------------------------------------------------- ----------- -----------
Net fair value remeasurements on derivative contracts
included in cost of sales 32.6 36.6
-------------------------------------------------------- ----------- -----------
Net remeasurements realised on maturity of derivative
contracts included in cost of sales 53.1 98.0
-------------------------------------------------------- ----------- -----------
Certain remeasurements included within operating profit (298.2) 48.7
-------------------------------------------------------- ----------- -----------
Net remeasurements on maturity of derivative contracts
included in interest payable and similar charges (0.4) (0.3)
-------------------------------------------------------- ----------- -----------
Net fair value remeasurements on derivative contracts
included in foreign exchange gains/(losses) (3.8) (5.1)
-------------------------------------------------------- ----------- -----------
Certain remeasurements included in profit before tax (302.4) 43.3
-------------------------------------------------------- ----------- -----------
Tax on certain remeasurements 57.5 (8.2)
-------------------------------------------------------- ----------- -----------
Impact of tax rate change 19.4 1.6
-------------------------------------------------------- ----------- -----------
Certain remeasurements after tax (225.5) 36.7
-------------------------------------------------------- ----------- -----------
Reconciliation of profit after tax from continuing
operations:
-------------------------------------------------------- ----------- -----------
Adjusted profit after tax 338.0 88.4
-------------------------------------------------------- ----------- -----------
Exceptional items after tax (30.0) (70.0)
-------------------------------------------------------- ----------- -----------
Certain remeasurements after tax (225.5) 36.7
-------------------------------------------------------- ----------- -----------
Total profit after tax 82.5 55.1
-------------------------------------------------------- ----------- -----------
(1) Comparative amounts for the year ended 31 December 2021 have
been re-presented to split out the impact of tax rate change
between exceptional items and certain remeasurements.
For each item designated as exceptional or as a certain
remeasurement, the table below summarises the impact of the item on
the Adjusted profit after tax and Adjusted basic EPS from
continuing operations and the total cash flow from continuing and
discontinued operations.
Year ended 31 December 2022
----------------------------------------------------------------------------------------------------
Net
Profit/(loss) Basic cash
Profit for earnings/(loss) from
Gross Operating before Tax the per operating
Revenue profit profit tax credit/(charge) period share activities
GBPm GBPm GBPm GBPm GBPm GBPm Pence GBPm
---------------- -------- -------- --------- ------- --------------- ------------- --------------- -----------
Total results
IFRS measure 7,775.3 1,023.3 146.3 78.1 4.4 82.5 21.3 207.7
---------------- -------- -------- --------- ------- --------------- ------------- --------------- -----------
Certain
remeasurements:
---------------- -------- -------- --------- ------- --------------- ------------- --------------- -----------
Net fair value
remeasurement
on derivative
contracts 383.9 298.2 298.2 302.4 (57.5) 244.9 61.2 -
---------------- -------- -------- --------- ------- --------------- ------------- --------------- -----------
Impact of tax
rate change - - - - (19.4) (19.4) (4.8) -
---------------- -------- -------- --------- ------- --------------- ------------- --------------- -----------
Exceptional
items:
---------------- -------- -------- --------- ------- --------------- ------------- --------------- -----------
Impairment of
non-current
assets - - 24.9 24.9 (4.7) 20.2 5.0 -
---------------- -------- -------- --------- ------- --------------- ------------- --------------- -----------
Impact of tax
rate change - - - - 9.8 9.8 2.4 -
---------------- -------- -------- --------- ------- --------------- ------------- --------------- -----------
Total 383.9 298.2 323.1 327.3 (71.8) 255.5 63.8 -
---------------- -------- -------- --------- ------- --------------- ------------- --------------- -----------
Adjusted results
totals 8,159.2 1,321.5 469.4 405.4 (67.4) 338.0 85.1 207.7
---------------- -------- -------- --------- ------- --------------- ------------- --------------- -----------
Year ended 31 December 2021 (1)
------------------------------------------------------------------------------------------------------------------
Basic Net cash
Profit/(loss) Profit/(loss) earnings/(loss) from
Gross Operating before Tax for the per operating
Revenue profit/(loss) profit/(loss) tax (charge)/credit period share activities
GBPm GBPm GBPm GBPm GBPm GBPm Pence GBPm
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Total results
IFRS measure 5,088.0 891.2 196.5 121.5 (66.4) 55.1 13.9 306.5
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Certain
remeasurements:
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Net fair value
remeasurement
on derivative
contracts 85.9 (48.7) (48.7) (43.3) 8.2 (35.1) (8.8) -
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Impact of tax
rate change - - - - (1.6) (1.6) (0.4) -
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Exceptional
items:
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Inventory
provision as a
result of coal
closure - 0.3 0.3 0.3 (0.1) 0.2 0.1 -
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Acquisition
costs - - 7.9 7.9 - 7.9 1.8 7.9
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Restructuring
costs - - 5.2 5.2 (0.8) 4.4 1.1 4.4
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Integration
costs - - 4.1 4.1 (0.8) 3.3 0.8 3.3
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Coal closure
costs - - 4.8 4.8 (0.8) 4.0 1.2 -
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Impact of tax
rate change - - - - 50.2 50.2 12.6 -
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Total 85.9 (48.4) (26.4) (21.0) 54.3 33.3 8.4 15.6
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
Adjusted results
totals 5,173.9 842.8 170.1 100.5 (12.1) 88.4 22.3 322.1
---------------- -------- ------------- ------------- ------------- --------------- ------------- --------------- ----------
(1) Comparative amounts for the year ended 31 December 2021 have
been re-presented to split out the impact of tax rate change
between exceptional items and certain remeasurements.
Adjusted EBITDA from continuing and discontinued operations is a
key measure of performance for the Group. A reconciliation from
Adjusted operating profit from continuing operations as per the
Consolidated income statement is shown below:
Year ended 31 December
2022
--------------------------
Attributable to
--------------------------
Owners
of the
Parent
Company NCI Total
GBPm GBPm GBPm
---------------------------------------- ---------- ------ ------
Adjusted operating profit/(loss) 472.0 (2.6) 469.4
---------------------------------------- ---------- ------ ------
Depreciation and amortisation 237.2 2.2 239.4
---------------------------------------- ---------- ------ ------
Impairment losses on non-current assets 16.6 - 16.6
---------------------------------------- ---------- ------ ------
Other losses 5.7 0.1 5.8
---------------------------------------- ---------- ------ ------
Income from associates (0.5) - (0.5)
---------------------------------------- ---------- ------ ------
Adjusted EBITDA 731.0 (0.3) 730.7
---------------------------------------- ---------- ------ ------
Year ended 31 December
2021
--------------------------
Attributable to
--------------------------
Owners
of the
Parent
Company NCI Total
GBPm GBPm GBPm
------------------------------------------------- ---------- ------ ------
Adjusted operating profit 170.6 (0.5) 170.1
------------------------------------------------- ---------- ------ ------
Depreciation and amortisation 198.3 0.6 198.9
------------------------------------------------- ---------- ------ ------
Other losses 9.3 0.1 9.4
------------------------------------------------- ---------- ------ ------
Income from associates (0.3) - (0.3)
------------------------------------------------- ---------- ------ ------
Adjusted EBITDA from continuing operations 377.9 0.2 378.1
------------------------------------------------- ---------- ------ ------
Adjusted EBITDA from discontinued operations 20.3 - 20.3
------------------------------------------------- ---------- ------ ------
Adjusted EBITDA from continuing and discontinued
operations 398.2 0.2 398.4
------------------------------------------------- ---------- ------ ------
Year ended 31 December 2022
---------------------------------------------------------------------
Innovation,
capital
Pellet projects Intra-group
Production Generation Customers and other eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----------- ---------- --------- ----------- ------------- -----
Segment Adjusted EBITDA:
------------------------- ----------- ---------- --------- ----------- ------------- -----
Continuing operations 133.7 695.5 25.8 (113.6) (10.4) 731.0
------------------------- ----------- ---------- --------- ----------- ------------- -----
Year ended 31 December 2021
---------------------------------------------------------------------
Innovation,
capital
Pellet projects Intra-group
Production Generation Customers and other eliminations Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----------- ---------- --------- ----------- ------------- -----
Segment Adjusted EBITDA:
------------------------- ----------- ---------- --------- ----------- ------------- -----
Continuing operations 85.7 351.5 5.7 (70.9) 5.9 377.9
------------------------- ----------- ---------- --------- ----------- ------------- -----
Discontinued operations - 20.3 - - - 20.3
------------------------- ----------- ---------- --------- ----------- ------------- -----
Total 85.7 371.8 5.7 (70.9) 5.9 398.2
------------------------- ----------- ---------- --------- ----------- ------------- -----
Net debt
Net debt is calculated by taking the Group's borrowings,
adjusting for the impact of associated hedging instruments, and
subtracting cash and cash equivalents.
The Group has entered into cross-currency interest rate swaps,
fixing the sterling value of the principal repayments and interest
in respect of the Group's US dollar (USD) and euro (EUR)
denominated debt. USD and EUR balances are translated at the hedged
rate, rather than the rate prevailing at the reporting date, which
impacts the carrying amount of the Group's borrowings. Net debt
excludes the share of borrowings and cash and cash equivalents
attributable to NCI. See the APMs glossary for further details on
the calculation of Net debt.
As at 31 December
--------------------
2022 2021
GBPm GBPm
------------------------------------------------------- --------- ---------
Borrowings (1,440.9) (1,361.0)
------------------------------------------------------- --------- ---------
Cash and cash equivalents 238.0 317.4
------------------------------------------------------- --------- ---------
Net cash and borrowings (1,202.9) (1,043.6)
------------------------------------------------------- --------- ---------
NCI's share of cash and cash equivalents in non-wholly
owned subsidiaries (0.7) -
------------------------------------------------------- --------- ---------
Net debt excluding the impact of hedging instruments (1,203.6) (1,043.6)
------------------------------------------------------- --------- ---------
Impact of hedging instruments (2.4) (64.4)
------------------------------------------------------- --------- ---------
Net debt (1,206.0) (1,108.0)
------------------------------------------------------- --------- ---------
Collateral posted/(received) 234.0 (172.8)
------------------------------------------------------- --------- ---------
Net debt excluding collateral (972.0) (1,280.8)
------------------------------------------------------- --------- ---------
The table below reconciles Net debt in terms of changes in these
balances across the year:
Year ended 31 December
------------------------
2022 2021
GBPm GBPm
------------------------------------------------- ----------- -----------
Net debt at 1 January (1,108.0) (819.1)
------------------------------------------------- ----------- -----------
(Decrease)/increase in cash and cash equivalents (85.6) 27.3
------------------------------------------------- ----------- -----------
Increase in borrowings (8.6) (310.2)
------------------------------------------------- ----------- -----------
Effect of changes in foreign exchange rates (65.8) 15.2
------------------------------------------------- ----------- -----------
Movement in the impact of hedging instruments 62.0 (21.2)
------------------------------------------------- ----------- -----------
Net debt at 31 December (1,206.0) (1,108.0)
------------------------------------------------- ----------- -----------
Borrowings include listed bonds, bank debt and RCFs (to the
extent drawn in cash), net of any deferred finance costs.
Borrowings do not include other financial liabilities such as lease
liabilities and trade and other payables.
The Group does not include lease liabilities, calculated in
accordance with IFRS 16, in the definition of Net debt. This
reflects the nature of the contracts included in this balance
which, prior to the application of IFRS 16, were predominantly not
held on the Consolidated balance sheet and instead disclosed as
operating commitments. The exclusion of lease liabilities from the
calculation of Net debt is also consistent with the Group's
covenant reporting requirements.
The Group does not include balances related to supply chain
financing or factoring in the definition of Net debt. These
facilities do not increase the Group's working capital cycle beyond
the Group's standard payment terms and are only short-term
balances. Therefore, the balances do not meet the Group's
definition of borrowings and so are excluded from Net debt.
The Group has a long-term target for Net debt to Adjusted EBITDA
of around 2.0 times.
As at 31 December
--------------------
2022 2021
--------------------------------------------------------- --------- ---------
Adjusted EBITDA (continuing and discontinued operations)
(GBPm) 731.0 398.2
--------------------------------------------------------- --------- ---------
Net debt (GBPm) (1,206.0) (1,108.0)
--------------------------------------------------------- --------- ---------
Net debt excluding collateral (GBPm) (972.0) (1,280.8)
--------------------------------------------------------- --------- ---------
Net debt to Adjusted EBITDA ratio 1.6 2.8
--------------------------------------------------------- --------- ---------
Net debt (excluding collateral) to Adjusted EBITDA ratio 1.3 3.2
--------------------------------------------------------- --------- ---------
Cash and committed facilities
The below table reconciles the Group's available cash and
committed facilities:
As at 31 December
-------------------
2022 2021
GBPm GBPm
---------------------------------------------- ---------- -------
Cash and cash equivalents 238.0 317.4
---------------------------------------------- ---------- -------
RCF available but not utilised (1) 260.1 231.4
---------------------------------------------- ---------- -------
Liquidity facility available but not utilised 200.0 -
---------------------------------------------- ---------- -------
Total cash and committed facilities 698.1 548.8
---------------------------------------------- ---------- -------
(1) The Group's available balance on the RCF facility (includes
GBP300 million and C$10 million RCF) is reduced by letters of
credit drawn under the RCF. At 31 December 2022 GBP46.0 million
letters of credit were drawn (2021: GBP74.4 million).
Further commentary on total cash and committed facilities is
contained within the Financial review.
5 Earnings per share
Earnings per share (EPS) represents the amount of earnings
(post-tax profit or losses) attributable to each ordinary share in
issue. Basic EPS is calculated by dividing the Group's earnings
attributable to owners of the Parent Company (profit or loss after
tax in accordance with IFRS excluding amounts attributable to NCI)
by the weighted average number of ordinary shares that were in
issue during the year. Diluted EPS demonstrates the impact of all
outstanding share options that would vest on their future maturity
dates if the conditions at the end of the reporting period were the
same as those at the end of the contingency period (such as those
to be issued under employee share schemes, were exercised and
treated as ordinary shares as at the reporting date. Repurchased
shares of 13.8 million (2021: 13.8 million) held in the Treasury
shares reserve are not included in the weighted average calculation
of shares. For the purpose of calculating diluted EPS, the weighted
average calculation of shares excludes any share options that would
have an anti-dilutive impact.
Year ended 31 December
------------------------
2022 2021
--------------------------------------------------------- ----------- -----------
Earnings attributable to equity holders of the Parent
Company for the purposes of basic and diluted earnings
per share (GBPm), made up of: 85.1 79.7
--------------------------------------------------------- ----------- -----------
Net result from continuing operations 85.1 55.6
--------------------------------------------------------- ----------- -----------
Net result from discontinued operations - 24.1
--------------------------------------------------------- ----------- -----------
Number of shares (millions):
--------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for the
purposes of basic earnings per share 400.4 398.4
--------------------------------------------------------- ----------- -----------
Effect of dilutive potential ordinary shares under share
plans 14.0 14.2
--------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares for the
purposes of diluted earnings per share 414.4 412.6
--------------------------------------------------------- ----------- -----------
Year ended 31 December
------------------------------------------------
2022 2021
--------------------------------------- ----------------------- -----------------------
Earnings per share attributable to the Adjusted Adjusted
owners of the Parent Company results Total results results Total results
--------------------------------------- -------- ------------- -------- -------------
Earnings - profit after tax (GBPm) 340.6 85.1 105.6 79.7
--------------------------------------- -------- ------------- -------- -------------
Earnings per share - basic (pence) 85.1 21.3 26.5 20.0
--------------------------------------- -------- ------------- -------- -------------
Earnings per share - diluted (pence) 82.2 20.5 25.6 19.3
--------------------------------------- -------- ------------- -------- -------------
Year ended 31 December
------------------------------------------------
2022 2021
---------------------------------------------- ----------------------- -----------------------
Earnings per share from continuing operations
attributable to the owners of the Parent Adjusted Adjusted
Company results Total results results Total results
---------------------------------------------- -------- ------------- -------- -------------
Earnings - profit after tax (GBPm) 340.6 85.1 88.9 55.6
---------------------------------------------- -------- ------------- -------- -------------
Earnings per share - basic (pence) 85.1 21.3 22.3 13.9
---------------------------------------------- -------- ------------- -------- -------------
Earnings per share - diluted (pence) 82.2 20.5 21.5 13.5
---------------------------------------------- -------- ------------- -------- -------------
There were no discontinued operations in the year. The Total
profit after tax from discontinued operations in 2021 of GBP24.1
million, resulted in Total basic EPS of 6.1 pence and Total diluted
EPS of 5.8 pence. Application of the same calculation to Adjusted
profit after tax from discontinued operations in 2021 of GBP16.7
million, resulted in Adjusted basic EPS of 4.2 pence and Adjusted
diluted EPS of 4.1 pence.
6 Dividends
Year ended 31 December
------------------------
2022 2021
GBPm GBPm
------------------------------------------------------ ---------- ------------
Amounts recognised as distributions to equity holders
in the year (based on the number of shares in issue
at the record date):
------------------------------------------------------ ---------- ------------
Interim dividend for the year ended 31 December 2022
of 8.4 pence per share paid on 7 October 2022
(2021: 7.5 pence per share paid on 8 October 2021) 33.7 29.9
------------------------------------------------------ ---------- ------------
Final dividend for the year ended 31 December 2021 of
11.3 pence per share paid on 13 May 2022
(2020: 10.3 pence per share paid on 14 May 2021) 45.2 41.0
------------------------------------------------------ ---------- ------------
Total distributions 78.9 70.9
------------------------------------------------------ ---------- ------------
At the forthcoming Annual General Meeting, the Board will
recommend to shareholders that a resolution is passed to approve
payment of a final dividend for the year ended 31 December 2022 of
12.6 pence per share (equivalent to approximately GBP50 million)
payable on or before 19 May 2023. The final dividend has not been
included as a liability as at 31 December 2022. This would bring
total dividends payable in respect of the 2022 financial year to
GBP84 million.
The Group has a long-standing capital allocation policy. This
policy is based on a commitment to robust financial metrics that
underpin the Group's strong credit rating: investment in the core
business; paying a sustainable and growing dividend; and returning
surplus capital to shareholders. The Board is confident that the
dividend is sustainable and expects it to grow as the
implementation of the Group's strategy generates an increasing
proportion of stable earnings and cash flows. In determining the
rate of growth in dividends, the Board will take account of future
investment opportunities and the less predictable cash flows from
the Group's commodity-linked revenue streams.
In future years, if there is a build-up of capital in excess of
the Group's investment needs, the Board will consider the most
appropriate mechanism to return this to shareholders.
7 Notes to the consolidated cash flow statement
Accounting policy
In accordance with IAS 7 the Group has elected to classify cash
flows from interest paid and interest received as cash flows from
operations, dividends paid as cash flows from financing activities,
and dividends received as cash flows from investing activities. The
interest repayment on lease liabilities is included within interest
paid, and the lease principal repayment is presented within cash
flows from financing activities.
Cash generated from operations
Cash generated from operations is the starting point of the
Group's Consolidated cash flow statement. The table below makes
adjustments for any non-cash accounting items to reconcile the
Group's net profit for the year to the amount of cash generated
from the Group's operations.
Year ended 31 December
------------------------
2022 2021
GBPm GBPm
-------------------------------------------------------- ----------- -----------
Profit for the year - continuing 82.5 55.1
-------------------------------------------------------- ----------- -----------
Profit for the year - discontinued - 24.1
-------------------------------------------------------- ----------- -----------
Adjustments for:
-------------------------------------------------------- ----------- -----------
Interest payable and similar charges 83.1 70.9
-------------------------------------------------------- ----------- -----------
Interest receivable (4.3) (0.3)
-------------------------------------------------------- ----------- -----------
Tax (credit)/charge (4.4) 68.1
-------------------------------------------------------- ----------- -----------
Research and development tax credits (5.5) (7.5)
-------------------------------------------------------- ----------- -----------
Income from associates (0.5) (0.3)
-------------------------------------------------------- ----------- -----------
Depreciation of property, plant and equipment 187.7 149.8
-------------------------------------------------------- ----------- -----------
Amortisation of intangible assets 31.4 34.4
-------------------------------------------------------- ----------- -----------
Depreciation of right-of-use assets 20.3 15.2
-------------------------------------------------------- ----------- -----------
Impairment of non-current assets 41.5 -
-------------------------------------------------------- ----------- -----------
Losses on disposal of fixed assets 5.5 9.4
-------------------------------------------------------- ----------- -----------
Gain on disposal of subsidiaries - (16.2)
-------------------------------------------------------- ----------- -----------
Other losses 0.3 -
-------------------------------------------------------- ----------- -----------
Certain remeasurements of derivative contracts(1) 288.7 (74.6)
-------------------------------------------------------- ----------- -----------
Non-cash charge for share-based payments 9.6 7.4
-------------------------------------------------------- ----------- -----------
Effect of foreign exchange rates (2.2) 1.3
-------------------------------------------------------- ----------- -----------
Operating cash flows before movement in working capital 733.7 336.8
-------------------------------------------------------- ----------- -----------
Changes in working capital:
-------------------------------------------------------- ----------- -----------
(Increase)/decrease in inventories (133.4) 37.4
-------------------------------------------------------- ----------- -----------
Increase in receivables (379.0) (27.4)
-------------------------------------------------------- ----------- -----------
Increase in payables 431.8 15.0
-------------------------------------------------------- ----------- -----------
(Decrease)/increase in net collateral postings(2) (406.8) 168.3
-------------------------------------------------------- ----------- -----------
Decrease in provisions (29.1) (4.2)
-------------------------------------------------------- ----------- -----------
Decrease/(increase) in renewable certificate assets 113.7 (161.8)
-------------------------------------------------------- ----------- -----------
Total cash (absorbed by)/released from working capital (402.8) 27.3
-------------------------------------------------------- ----------- -----------
Net movement in defined benefit pension obligations(3) (10.6) (9.6)
-------------------------------------------------------- ----------- -----------
Cash generated from operations 320.3 354.5
-------------------------------------------------------- ----------- -----------
(1) Certain remeasurements of derivative contracts includes the
effect of non-cash unrealised gains and losses recognised in the
Consolidated income statement and their subsequent cash
realisation. It also includes the cash and non-cash impact of
deferring and recycling gains and losses on derivative contracts
designated into hedge relationships under IFRS 9, where the gain or
loss is held in the hedge reserve and then released to the
Consolidated income statement in the period the hedged transaction
occurs.
(2) The GBP168.3 million increase in collateral received in the
prior year has been re-presented. Previously this was included in
the movement in receivables as a GBP30.6 million increase and
movement in payables as a GBP198.9 million increase.
(3) The comparative figure has been re-presented to combine the
defined benefit scheme current and past service costs and
contributions into a net defined benefit pension obligation.
The Group has generated cash from operations of GBP320.3 million
during the year (2021: GBP354.5 million). This resulted from a cash
inflow from operating activities before working capital of GBP733.7
million (2021: GBP336.8 million). This was offset by a GBP10.6
million (2021: GBP9.6 million) cash outflow in respect of pension
obligations and a net working capital outflow of GBP402.8 million
(2021: GBP27.3 million inflow), principally due to collateral
payments. The most significant factors making up these cash
movements are explained in further detail below.
The GBP288.7 million adjustment for certain remeasurements of
derivative contracts (2021: GBP(74.6) million adjustment)
predominantly relates to net unrealised losses recognised within
the Consolidated income statement, where cash has not yet been paid
or received by the Group. These net unrealised losses were offset
by a net cash outflow due to realised losses on maturing
trades.
From time to time, where market conditions change, the Group can
rebase foreign currency contracts including cross-currency interest
rate swaps. Rebasing trades accelerates certain cash flows at the
point of rebasing that would have been received on maturity or at
contractual payment dates per the original terms of the trade.
There is an equal and opposite reduction in cash flows (less
rebasing fees) on the original maturity or contractual payment
dates. At 31 December 2022 the Group had accelerated GBP43.1
million of cash flows through the use of rebasing (2021: GBP48.1
million). The reduction in accelerated cash flows reflects the
unwinding of the cash benefit as the original maturity or
contractual payment dates pass. The accelerated cash flows related
wholly to rebased cross-currency interest rate swaps in the current
and prior year. The impact of rebasing is reflected within the
Certain remeasurements of derivative contracts line in the table
above.
The Group has a strong focus on cash flow discipline and
managing liquidity. The Group enhances its working capital position
by managing payables, receivables, inventories and renewable
certificate assets to make sure the working capital committed is
closely aligned with operational requirements. The impact of these
actions on the cash flows of the Group is explained further
below.
High levels of volatility in power and commodity markets have
continued during 2022. Cash collateral is sometimes paid or
received in relation to the Group's commodity and treasury trading
activities. When derivative positions are out of the money for the
Group, collateral may be required to be paid to the counterparty.
When derivative positions are in the money, collateral may be
received from counterparties. These positions reverse when
contracts are settled and the collateral is returned.
The Group actively manages the liquidity requirements, including
collateral, associated with the hedging of power and other
commodities. At 31 December 2022 the Group had a net posting of
collateral. However, the design of the Group's trading agreements
and methods of posting collateral, such as being able to utilise
letters of credit and surety bonds to meet collateral requirements,
aims to minimise cash outflows resulting from collateral
requirements where possible. The Group has had a net cash outflow
of GBP406.8 million during the year due to collateral (2021:
GBP168.3 million inflow). At 31 December 2022 the Group held GBPnil
in cash collateral receipts (2021: GBP205.6 million) recognised in
payables and had posted GBP234.0 million (2021: GBP32.8 million) of
cash collateral payments recognised in receivables. The Group also
had GBP54.5 million (2021: GBP42.5 million) of letters of credit
and GBP165.0 million (2021: GBP107.1 million) of surety bonds
utilised covering commodity trading collateral requirements.
Letters of credit and surety bonds utilised at the reporting date
have reduced the requirement for cash collateral payments, which
has reduced the amount by which receivables has increased.
The GBP379.0 million (2021: GBP27.4 million) cash outflow due to
an increase in receivables in 2022 is predominantly related to the
Customers segment as a result of higher power and gas prices during
the year, resulting in higher amounts receivable from
customers.
The Customers business has access to a facility which enables it
to accelerate cash flows associated with amounts receivable from
energy supply customers on a non-recourse basis. The Group has
refinanced this facility during the year, extending the maturity to
January 2027 and increasing the size of the facility to GBP300.0
million from GBP200.0 million. The Group also agreed a further
increase to the GBP300.0 million limit, to GBP400.0 million, for
the period November 2022 to January 2024. Utilisation of the
facility was GBP400.0 million at 31 December 2022 (2021: GBP200.0
million). The additional utilisation of this facility has resulted
in a GBP200.0 million cash inflow which has offset the increase in
receivables described above to lead to the net GBP379.0 million
cash outflow.
The movement in renewable certificate assets during the year
includes a combination of generation, utilisation, purchases and
sales. The GBP113.7 million cash inflow is predominantly due to the
Group's use of standard renewable certificate sale and renewable
certificate purchase arrangements. Cash from renewable
certificates, and in particular ROCs, is typically realised several
months after they are earned; however, through these arrangements,
the Group is able to accelerate cash flows over a proportion of
these assets. At 31 December 2022 the Group had accelerated
GBP331.2 million of cash flows using these standard renewable
certificate sales (2021: GBP199.8 million). This cash inflow was
offset by a net cash outflow as a result of renewable certificates
generated and still held by the Group.
The Group had a GBP431.8 million (2021: GBP15.0 million) cash
inflow due to an increase in payables during the year. This
increase is predominantly due to increased levels of power
repurchases within the Generation business in the current year, as
well as higher accruals as a result of both increased volumes and
higher prices in the Customers business.
The Group has sought to normalise payments across its supplier
base resulting in certain suppliers extending payment terms and
some reducing terms. The Group's suppliers are able to access a
supply chain finance facility provided by a bank, for which funds
can be accelerated in advance of the normal payment terms. At 31
December 2022, the Group had trade payables of GBP53.9 million
(2021: GBP50.4 million) related to reverse factoring. The facility
does not directly impact the Group's working capital, as payment
terms remain unaltered with the Group and would remain the same
should the facility fall away.
The Group also has access to a number of payment facilities to
leverage scale and efficiencies in transaction processing, whilst
providing a working capital benefit for the Group due to a short
extension of payment terms of less than 12 months. The amount
outstanding under these facilities at 31 December 2022 was GBP214.5
million (2021: GBP62.2 million) resulting in a cash inflow of
GBP152.3 million. Utilisation of these payment facilities has
reduced the cash outflow in the purchases of property, plant and
equipment line in the Consolidated cash flow statement by GBP64.6
million and has also impacted the movement in payables line in the
table above by GBP87.7 million.
The cash outflow of GBP133.4 million as a result of the increase
in inventories results in part from the planned build-up of
inventories due to the reprofiling of generation from summer into
winter.
Changes in liabilities arising from financing cash flows
A reconciliation of the movements in liabilities arising from
financing activities for both cash and non-cash movements is
provided below:
As at 31 December 2022
--------------------------------------
Borrowings Lease liabilities Total
GBPm GBPm GBPm
------------------------------------- ---------- ----------------- -------
Balance at 1 January 1,361.0 125.9 1,486.9
------------------------------------- ---------- ----------------- -------
Cash flows from financing activities 2.1 (18.0) (15.9)
------------------------------------- ---------- ----------------- -------
Effect of foreign exchange rates 71.3 11.5 82.8
------------------------------------- ---------- ----------------- -------
Other movements 6.5 33.7 40.2
------------------------------------- ---------- ----------------- -------
Balance at 31 December 1,440.9 153.1 1,594.0
------------------------------------- ---------- ----------------- -------
As at 31 December 2021
--------------------------------------
Borrowings Lease liabilities Total
GBPm GBPm GBPm
------------------------------------- ---------- ----------------- -------
Balance at 1 January 1,065.7 30.2 1,095.9
------------------------------------- ---------- ----------------- -------
Cash flows from financing activities 46.3 (13.2) 33.1
------------------------------------- ---------- ----------------- -------
Effect of foreign exchange rates (14.9) 2.7 (12.2)
------------------------------------- ---------- ----------------- -------
Other movements 7.6 45.1 52.7
------------------------------------- ---------- ----------------- -------
Acquisition of subsidiary 256.3 61.1 317.4
------------------------------------- ---------- ----------------- -------
Balance at 31 December 1,361.0 125.9 1,486.9
------------------------------------- ---------- ----------------- -------
Other movements principally relate to the amortisation of
deferred finance costs, discounting of lease liabilities and lease
additions in the year.
Alternative performance measures (APMs) glossary table
The measures described below are used throughout the Annual
report and accounts and are measures that are not defined within
IFRS but provide additional information about financial performance
and position that is used by the Board to evaluate the Group's
trading performance. These measures have been defined internally
and may therefore not be comparable to APMs presented by other
companies. Additionally, certain information presented is derived
from amounts calculated in accordance with IFRS but is not itself a
measure defined under IFRS. Such measures should not be viewed in
isolation or as an alternative to the equivalent IFRS measure.
Closest IFRS
equivalent
APM measure Purpose Definition
------------------- ------------------- --------------------------------- ---------------------------------
Adjusted results Total results The Group's Adjusted results Total results measured
are consistent with the in accordance with IFRS
way Executive management excluding the impact
and the Board assess the of exceptional items
performance of the Group. and certain remeasurements
Adjusted results are intended (defined in note 4).
to reflect the underlying
trading performance of
the Group's businesses
and are presented to assist
users of the financial
statements in evaluating
the Group's trading performance
and performance against
strategic objectives on
a consistent basis.
Adjusted results excludes
exceptional items and
certain remeasurements.
Exceptional items are
those transactions that,
by their nature, do not
reflect the trading performance
of the Group in
the period.
Certain remeasurements
comprise fair value gains
and losses that do not
qualify for hedge accounting.
The Group regards all
of its forward contracting
activity to represent
economic hedges and therefore
by excluding the volatility
caused by recognising
fair value gains and losses
prior to maturity of the
contracts, the Group can
reflect these contracts
at the contracted prices
on maturity, reflecting
the intended purpose of
entering these contracts
and the Group's underlying
performance.
Adjusted results are the
metrics used in the calculation
of Adjusted basic and
Adjusted diluted EPS.
------------------- ------------------- --------------------------------- ---------------------------------
Adjusted EBITDA Operating profit(1) Adjusted EBITDA is the Earnings before interest,
primary measure used by tax, depreciation and
Executive management and amortisation, gains or
the Board to assess the losses on disposal of
financial performance assets, fair value adjustments
of the Group as it provides on contingent consideration,
a more comparable assessment and impairment of non-current
of the Group's year-on-year assets, excluding the
trading performance. It impact of exceptional
is also a key metric used items and certain remeasurements
by the investor community (defined in note 4).
to assess the performance Adjusted EBITDA excludes
of the Group's operations. any earnings from associates
and Adjusted EBITDA attributable
to non-controlling interests.
Adjusted EBITDA is stated
from both continuing
operations and discontinued
operations, where appropriate.
------------------- ------------------- --------------------------------- ---------------------------------
Adjusted basic Basic EPS Adjusted basic EPS represents Adjusted basic EPS is
EPS the amount of Adjusted calculated by dividing
earnings (Adjusted post-tax the Group's Adjusted
earnings) attributable earnings attributable
to each ordinary share. to the owners of the
Parent Company (Adjusted
profit after tax) by
the weighted average
number of ordinary shares
in issue during the period.
------------------- ------------------- --------------------------------- ---------------------------------
Adjusted diluted Diluted EPS Adjusted diluted EPS demonstrates Adjusted diluted EPS
EPS the impact upon the Adjusted is calculated by dividing
basic EPS if all outstanding the Group's Adjusted
share options, that are earnings attributable
expected to vest on their to the owners of the
future maturity dates Parent Company (Adjusted
and where the shares are profit after tax) by
considered to be dilutive, the weighted average
were exercised and treated number of ordinary shares
as ordinary shares as in issue during the period
at the reporting date. and dilutive potential
ordinary shares under
share plans.
------------------- ------------------- --------------------------------- ---------------------------------
Net debt Borrowings Net debt is a key measure Total borrowings including
less cash and of the Group's liquidity the impact of hedging
cash equivalents and its ability to manage instruments less cash
current obligations. and cash equivalents.
Net debt is used as a Total borrowings include
basis by debt rating agencies external financial debt,
and in the calculation such as loan notes, term
of the Group's financial loans and amounts drawn
covenant requirements. in cash under revolving
credit facilities but
excludes other financial
The impact of hedging liabilities such as lease
instruments included within liabilities calculated
Net debt shows the economic in accordance with IFRS
substance of the Net debt 16, pension obligations
position, in terms of and trade and other payables.
actual expected future Net debt excludes the
cash flows to settle that proportion of cash and
debt. borrowings in non-wholly
owned entities that would
be attributable to the
non-controlling interests.
Net debt includes the
impact of hedging instruments
meaning that any borrowings
that have hedging instruments
in place are adjusted
to reflect those borrowings
at the hedged rate.
------------------- ------------------- --------------------------------- ---------------------------------
Net debt to Borrowings The Net debt to Adjusted Net debt divided by Adjusted
Adjusted EBITDA less cash and EBITDA ratio is a debt EBITDA. Expressed as
ratio cash equivalents ratio that gives an indication a multiple.
divided by of how many years it would
operating profit take the Group to pay
back its debt if Net debt
and Adjusted EBITDA are
held constant.
The Group has a long-term
target for Net debt to
Adjusted EBITDA of around
2.0 times.
------------------- ------------------- --------------------------------- ---------------------------------
Cash and committed Cash and cash This is a key measure Total cash and cash equivalents
facilities equivalents of the Group's available plus the value of the
liquidity and the Group's Group's committed but
ability to manage its undrawn facilities (including
current obligations. the Group's RCFs, loan
facilities and the Customers
trade receivable factoring
It shows the value of facility).
cash available to the
Group in a short period
of time.
------------------- ------------------- --------------------------------- ---------------------------------
Cost of production Cost of sales A key metric showing the Costs of sales attributable
cost of produced biomass. to biomass production
plus an allocation of
operating expenses not
Also, a key metric in directly attributable
monitoring the Group's to biomass production,
strategy to reduce biomass divided by tonnes of
costs. biomass produced.
Expressed as a cost per
tonne produced.
------------------- ------------------- --------------------------------- ---------------------------------
Capital expenditure Property, plant Used to show the Group's PPE additions plus intangible
and equipment total spend on PPE and asset additions.
(PPE) additions intangible assets in a
and intangible year.
asset additions
------------------- ------------------- --------------------------------- ---------------------------------
(1) Operating profit is presented on the Group's Consolidated
income statement; however, it is not defined per IFRS. It is a
generally accepted measure of profit.
Glossary
Ancillary services
Services provided to National Grid used for balancing supply and
demand or maintaining secure electricity supplies within acceptable
limits, for example Black start contracts. They are described in
Connection Condition 8 of the Grid Code.
Availability
Average percentage of time the units were available for
generation.
BECCS
Bioenergy with carbon capture and storage, with carbon resulting
from power generation captured and stored.
BEIS
The UK Government Department for Business, Energy and Industrial
Strategy, bringing together the responsibilities for business,
industrial strategy science, innovation, energy and climate
change.
In February 2023, BEIS was split into three new departments: the
Department for Business and Trade, the Department for Energy
Security and Net Zero, and the Department for Science, Innovation
and Technology.
Black start
Procedure used to restore power in the event of a total or
partial shutdown of the national electricity transmission
system.
Biomass
Organic material of non-fossil origin, including organic waste,
that can be converted into bioenergy through combustion. The Group
uses low-grade wood, sawmill residues and forest residues, in the
form of compressed wood pellets, to generate electricity at Drax
Power station or sell the pellets to third parties.
Capacity Market
Part of the UK Government's Electricity Market Reform, the
Capacity Market is intended to ensure security of electricity
supply by providing a payment for reliable sources of capacity.
Carbon capture and storage (CCS)
The process of trapping or collecting carbon emissions from a
large-scale source and then permanently storing them.
Carbon price support
A tax upon fossil fuels (including coal) used to generate
electricity. It is charged as a levy on coal delivered to Drax
Power station.
CCC
The UK's Climate Change Committee.
Clearcutting
An important forest regeneration technique that supports
sustainable forest management. It happens when most (or all) trees
in an area are harvested simultaneously. It is a well-established
forestry practice in many regions, including the UK, Europe and
North America.
Contracts for difference (CfD)
A mechanism to support investment in low-carbon electricity
generation. The CfD works by stabilising revenues for generators at
a fixed price level known as the 'strike price'. Generators will
receive revenue from selling their electricity into the market as
usual, however, when the market reference price is below the strike
price, they also receive a top-up payment for the additional
amount. Conversely, if the reference price is above the strike
price, the generator must pay back the difference.
Combined Cycle Gas Turbines (CCGT)
A form of highly efficient energy generation technology that
combines a gas-fired turbine with a steam turbine.
Dispatchable power
An electricity generator produces Dispatchable Power when the
power can be ramped up and down, or switched on or off, at short
notice to provide a flexible response to changes in electricity
demand. Biomass, pumped storage, coal, oil, and gas electricity
generation can meet these criteria and hence can be Dispatchable
Power sources. Nuclear can be dispatched against an agreed schedule
but is not flexible. Wind and solar electricity cannot be scheduled
and hence are not Dispatchable. An electricity system requires
sufficient Dispatchable Power to operate and remain safe.
EBRS
The UK Government's Energy Bill Relief Scheme.
ESG
Environmental, Social and Governance.
EU ETS
The EU Emissions Trading System is a mechanism introduced across
the EU to reduce carbon emissions; the scheme is capable of being
extended to cover all greenhouse gas emissions.
First Nations
Any of the groups of indigenous peoples in Canada.
Forced outage/Unplanned outage
Any reduction in plant availability, excluding planned
outages.
FSC(R)
Forest Stewardship Council: an international non-governmental
organisation which promotes responsible management of the world's
forests.
Frequency response
The automatic change in generation output, or in demand, to
maintain a system frequency of 50Hz.
GHG
Greenhouse Gas.
Grid charges
Includes transmission network use of system charges (TNUoS),
balancing services use of system charges (BSUoS) and distribution
use of system charges (DUoS).
Headroom and footroom
Positive 'reserve' (see below) may be termed headroom and
negative reserve as footroom.
IAB
Independent Advisory Board, comprising scientists, academics,
and forestry experts who provide independent challenge, insight and
advice into the Group's activities.
IFRS
International Financial Reporting Standards.
Inertia
The stored energy in the large rotating mass of a generator,
which assists in maintaining system stability. Wind and solar power
sources have no inertia.
Lost Time Incident Rate (LTIR)
The frequency rate is calculated on the following basis:
(fatalities and lost time injuries)/hours worked x 100,000. Lost
time injuries are defined as occurrences where the injured party is
absent from work for more than 24 hours.
NGO
Non-governmental organisation.
Open Cycle Gas Turbine (OCGT)
A free-standing gas turbine, using compressed air, to generate
electricity.
Planned outage
A period during which scheduled maintenance is executed
according to the plan set at the outset of the year.
PEFC (c)
Programme for the Endorsement of Forest Certifications: an
independent, non-profit, non-governmental organisation that
promotes sustainable forest management through independent
third-party certification.
Pulp log
A low value and bulky product, generally produced from the top
of trees or from production thinnings, with the principal use of
making wood pulp for paper production.
Rebasing
Rebasing is when the Group releases cash from an open derivative
contract that is in a mark-to-market asset position by modifying
the rate per the contract. A cash payment equivalent to the
reduction in the mark-to-market asset is received by the Group from
the counterparty, less any applicable fees.
Reserve
Generation or demand available to be dispatched by the System
Operator to correct a generation/demand imbalance, normally at two
or more minutes' notice.
Response
Automatic change in generator output aimed at maintaining a
system frequency of 50Hz. Frequency response is required in every
second of the day.
RIDDOR
Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations.
Right Biomass
Biomass that will deliver positive outcomes for climate, nature
and people.
ROC
A Renewable Obligation Certificate (ROC) is a certificate issued
to an accredited generator for electricity generated from eligible
renewable sources.
Saw log
A felled tree trunk suitable for being processed at a sawmill
for cutting up into lumber.
SBP
Sustainable Biomass Program: a certification system designed for
woody biomass used in industrial energy production.
Summer
The calendar months April to September.
Sustainable biomass
Biomass which complies with the UK Renewables Obligation Order
2015: definition of "sustainable source", Schedule 3, Land
Criteria.
System operator
National Grid Electricity Transmission. Responsible for the
co-ordination of electricity flows onto and over the transmission
system, balancing generation supply and user demand.
TCFD
Taskforce on Climate-related Financial Disclosures.
Thinning
Thinning operations correct over-crowding, and improve the
health and vigour of those trees which remain. Thinning targets
small, malformed, and diseased trees for removal, allowing the
healthier trees the space, light, and soil to reach maturity
sooner. Thinning also mitigates the risk of pest infestation and
wildfire, while speeding the development of a more mature forest
with increased plant diversity.
Total recordable incident rate (TRIR)
The frequency rate is calculated on the following basis:
(fatalities, lost time injuries and worse than first aid
injuries)/hours worked x 100,000.
Total results
Financial performance measures prefixed with 'Total' are
calculated in accordance with IFRS.
UK ETS
The UK Emissions Trading Scheme is a mechanism introduced across
the UK to reduce carbon emissions; the scheme is capable of being
extended to cover all greenhouse gas emissions.
Voltage control/reactive power
Maintenance of voltage within specified limits in order to
'push' power around the system to maintain safety and
stability.
Winter
The calendar months October to March.
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FR PPUCPPUPWUUW
(END) Dow Jones Newswires
February 23, 2023 02:00 ET (07:00 GMT)
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