Drax’s strategy working amid challenging commodity markets

DRAX, the UK’s largest coal fired power station, said that it had delivered on its strategy against a backdrop of challenging commodity markets.

The Selby-based firm reported EBITDA (profit before interest, tax, depreciation and amortisation and unrealised gains / losses) of £150m for the six months ended June 30 compared to £206m the same period last year.

Revenue was £707m down from £802m during the first half 2008.

Drax said the results reflected decreases in average achieved power price and power sold. However, these were partially offset by lower fuel and carbon costs.

It said that in the short-term commodity market conditions remain challenging but that its strategy to improve its financial position was paying off.

In June, it successfully raised £107m through a share placing, which has led the the extension of its credit facilities.

The move came after credit rating agency Standard & Poor downgraded Drax’s senior secured debt rating from BBB to BBB- with “negative outlook”.

As well as the share pacing, Drax said that strong financial management was also expected to deliver cost savings.

While its expectations for core profits for the full year remain unchanged, an additional £30m of EBITDA and cash has been added through the close-out of in-the-money foreign exchange contracts relating to fuel and carbon purchases for the period 2010 to 2012.

Commenting on the performance Dorothy Thompson, chief executive of Drax, said: “During the first half of 2009, we have continued to deliver on our strategy against a backdrop of challenging commodity markets.

“Our near term market remains volatile and unpredictable. We have therefore accelerated our hedging for 2010 and are now over 80% contracted, at higher achieved margins than the current year.”

She added: “This will underpin next year’s gross profit at a level, under current market conditions, that is comfortably in excess of the underlying level this year.

Operationally, Drax’s carbon abatement projects remain on budget and schedule and the power generator is now halfway through a turbine upgrade project while construction of a biomass firing facility in proceeding to plan.

Integration of recent acquisition Haven Power has been completed and according to the firm is proving an “excellent fit”.

The electricity supply company serves around 19,000 SMEs and offers another route to market for Drax.