Drax Group plc

Thank you, and good morning, everyone. Thank you all for joining the call. I'm going to provide a short introduction and overview, and then I'll hand over to Andy, who will take you through the numbers and some of the operating points. And then I'll come back to talk about some of our investment opportunities and more about capital allocations, and we'll finish up the questions. Now on page three. You're all familiar with our purpose, which is to enable a zero-carbon, lower-cost energy future. I'll start with that as I always do, as it guides fundamentally everything that we do. Our strategy and business model are designed to deliver attractive returns for shareholders while realizing that purpose. We have a strong core cash generated business that has a track record of achieving those joint objectives. And looking to the future, we have opportunities to invest in that core business to enhance shareholder returns, as well as deliver positive outcomes for climate, nature, and people. And critically, our people are at the heart of DRACS, where I want everyone to feel a valued member on a winning team with a worthwhile mission. Returning to page four. We have had a strong year. Good safety performance is critical in its own right, and also underpins good operating and financial performance. So I was pleased at our total recordable injury rates, reduced in 2024 from 0.38 in 23 to 0.24. We produced 25% more power than we did in 2023, which combined with a strong improvement in pellet production has driven a 5% increase in adjusted EBITDA. We significantly strengthened our balance sheet, adding 700 million of new debt that matures in 2027 and beyond at attractive rates, which reflects the market's confidence in our long-term business. We use those proceeds to repay about $900 million of shorter-dated facilities. We're committed to shareholder return, and we're delivering those through the disciplined application of our capital allocation policy. We're announcing today a 12.6% increase in our dividends per share, and we continue with a £300 million share buyback, which reflects our belief in the value we see in the business. The recent CFD agreement for the Drax power station is a good deal for the UK, and I also think it's a good deal for us. And importantly, it reflects a significant inflection point for our company. So taken together with FlexGen and Pellet Production, we're today announcing an upgraded target for recurring adjusted EBITDA of 600 to 700 million pounds from these three businesses post-2027. which reflects our increased confidence in earnings visibility after 27. And we also remain excited about the opportunities for long-term growth, which are aligned with the energy transition and security of supply. And we will continue to commit appropriate development expenditure to those opportunities. And that expenditure is additional or outside that post-2027 target for flex-gen, pellet production, and biomass generation, which I just mentioned. The bottom line though is I want to emphasize our capital allocation policy. We're committed to attractive returns to shareholders and we will continue to deliver those. Turning to page five. Last year, we began to talk about our business differently and I want to reiterate that story. Flexible Generation and Energy Solutions is doing well and is already at the target level of 250 million pounds of EBITDA on a pro forma basis. And Energy Solutions earlier this month We agreed the sale of all of the residual SME meters, which will mean that that business will be based on INC renewable and EV solutions. This has greatly simplified that business. The business is doing very well with good performance in INC, and we have learned important lessons from that simplification process. Our pallet production business has had a great year, and we have confidence in the future, but recognize we have work to do to deliver that target. The CFD bridge agreement for Grax Power Station gives us confidence that we can deliver between 100 and 200 million pounds of EBITDA during the bridge period. And I'll provide more details on that in a second. So again, across those three businesses, we're now targeting 600 to 700 million of adjusted EBITDA after 2027. And again, I want to reemphasize that that target is stated before accounting for development expenditure for growth. which is the fourth column on that page, but we have attractive options, which we continue to believe offer significant opportunity for long-term value creation. In our FlexGen business at the Drax power station, which could accommodate both the data center and BEX, it's unique in the UK and having four gigawatts of grid access. And in the context of electrification and the rising demand for power, as well as its importance for energy security, affordability, and decarbonization, the so-called energy trilemma. We're continuing to assess options to create long-term value from the site. And of course, we're continuing to be very excited about the opportunities in global carbon removals, which we will be executing through Elimini, our new carbon removals business. On to page six. The agreement of a heads of terms for a CFD supporting post-2027 operations is a very positive step and an endorsement of the contribution that Drax Power Station and biomass make towards energy security and decarbonization, as well as being a value for money solution, saving bill payers billions over the term of the agreement. Under the agreement, we will sell the equivalent of about six terawatt hours ratably across the year to achieve the base load reference price and receive or pay the difference between the base load reference price and the CFD strike price, the so-called pop-up. In periods of high demand, we will actually use all four units to produce and sell as much power as possible at higher peak prices. And in periods of lower demand, we will add value by buying back power at lower off-peak prices. By operating in this way, we will help support energy security, provide flexibility to the power system, and earn a higher average price for power than the CFD strike price. We expect the system to become more volatile in the future as electricity demand increases and more intermittent capacity comes online, creating more opportunities for us to do more and to earn more. And we're planning to run some sessions for investors and analysts with our commercial team to help explain the mechanics of the agreement. The agreement also includes the continued evolution of sustainability standards. And we're very supportive of that. There has been some suggestion that to meet supply chain emissions targets, we would be required to buy more European versus US biomass. I want to be quite clear that that's not the case. And wherever we source from, we expect our supply chain to meet those emissions targets, and we are confident that it will. Finally, just to describe a bit the process from here, we expect government to lay secondary legislation, a statutory instrument, before Parliament in the coming months, which will give them the power to award CFDs to biomass generators. And subsequently, the agreement will be subject to a subsidy control mechanism process. turning to page seven. I'm sure you all have seen this, but I just wanted to emphasize and highlight the recent launch of our new sustainability framework. This is a very important, large-scale piece of work, which supports our commitment to develop and enhance our approach to sustainability across the three pillars of client, nature, and people. Please have a look at it. It includes substantial targets across those three areas and something that we're very committed to. And again, we plan to arrange sessions to run through this with analysts and investors.

Now over to Eddie. Thank you, Will. And good morning, everyone. Starting with the financial summary on slide nine. Once again, we've delivered strong financial and operational performance. Adjusted EBITDA grew 5% to 1 billion and 64 million, reflecting a high level of renewable power in the energy and system support activity. Our balance sheet is strong. We ended the year with net debt to adjusted EBITDA of 0.9 times. The business is generating significant cash from operations, which provides a strong foundation for investing in our core business and delivering attractive returns to shareholders. Cash generated from operations in the year was over 1.1 billion. The board proposed a final dividend of 15.6 pence per share. bringing a full-year dividend for 2024 to 26 pence per share, which is a year-on-year increase of over 12%. Last week, we published a company-collected consensus for 2025. We are comfortable within the consensus range, subject to continued good operational performance. Moving on to look at performance by business. In February of last year, we set out a target to deliver more than 500 million an annum of post-27 recurring adjusted EBITDA from our flex-gen and energy solutions and pellet production businesses. As Will's already noted, earlier this month we agreed a non-binding heads of terms for a CFD for Drax power station to operate between April 27 and March 31. Reflecting our expectations for that agreement, in the range of 600 to 700 million. This excludes investment opportunities which includes development expenditure and eliminate innovation and capital projects. Performance and pumped storage and hydro was underpinned by robust system support earnings. Our INC Energy Solutions business continues to perform strongly. As Will noted, the majority of the meter points in the SME business were sold in September 24, and last week we reached agreement for the sale of the remaining meter points. These will take effect from May of 25, subject to regulatory approval. In pellet production, we increased volumes and margin, and we delivered record levels of adjusted EBITDA. Strong performance in biomass generation reflects a 27% increase in renewable generation and the continuing role that Drax Power Station plays in supporting the UK power system. On to slide 11. We're continuing to target greater than 250 million of post-27 recurring adjusted EBITDA from FlexGen and Energy Solutions. And strong performance in 2024 is supportive of delivering that target. Our pumped storage and run-of-river hydro assets perform strongly, with increased generation output compared to the prior period. Our assets are well placed to support the system and capture value when there's pronounced changes in system need and commodity prices, like in the period between 2022 and 2023. Adjusted EBITDA in energy solutions of £51 million included £81 million of earnings from our INC business. Alongside supplying renewable energy, our IMC business provides EV and other value-added services, such as asset optimisation. These earnings reflect a consistent margin on contracted energy supply prices. And we expect earnings from EV and other services to grow over time. In total, FlexGen and Energy Solutions delivered adjusted EBITDA of £188 million. So taken together with our target post-27 earnings from our three new OCGTs of 50 million and capacity market income from the Kruken Units 3 and 4 refurbishment of 15 million, the illustrative earnings increased to greater than 250 million. The 80 million investment to refurbish and upgrade Units 3 and 4 at Kruken is on track. The project's underpinned by a 15-year capacity market agreement worth over 220 million. and they'll add 40 megawatts of additional capacity by 2027 and improve unit operations. Our three new build OCGTs are expected to commission in 2025, whilst later than originally planned, primarily due to delays in grid connection by the relevant authorities. These OCGTs will provide combined capacity of 900 megawatts and be remunerated under 15-year capacity market agreements worth over 250 million. And in addition, will earn revenues from peak power generation and system support services. We believe that retirement of older thermal generation assets and increased reliance on intermittent renewables, together with an increase in power demand, will drive a growing need for dispatchable power and system support services, and that this creates long-term earnings opportunity and value from the group's flexible generation assets. Onwards to slide 12. We've already secured capacity market agreements in the period to 2042 with a value of 600 million pounds. This could grow to over one billion if on renewal we secure new capacity market agreements at an equivalent price to the 2024 T-4 auction of £65 a kilowatt. These values are in 2024 money, so they're subject to indexation with UK CPI. So now looking at pellet production on slide 13. Our pellet production business made strong progress in 2024 with improved operational performance and profitability. Production volumes increased to 4 million tonnes, of which 2.4 million tonnes were sold to Drax Power Station. The margin achieved on own-use supply better reflects the current market value of long-term, large-scale supply. The margin achieved on our legacy third-party contract is lower. Combined with a reduced cost of production, the achieved EBITDA margin per tonne of production increased to £36. And reflecting the above, adjusted EBITDA grew to £143 million. As Will noted earlier, we expect that own-use volumes will average around 2 million tonnes a year for the period of the CFD agreement for post-27 operations. And this provides a strong underpin to delivery of our target earnings. Delivering that £250 million target assumes that we will continue efforts to maximise production from our existing capacity and will drive operational efficiencies through our supply chain, and that will include increased use of technology. Secondly, that we'll renew lower margin legacy third-party contracts at improved pricing and or we'll secure sales to new markets, which includes SAF. And lastly, we'll add incremental capacity as the demand profile becomes clear. Hawking's right forecasts show a greater than 30% increase in demand for biomass from 50 million tonnes in 2024 to 65 million tonnes by 2030. And this reflects markets such as SAF and VEX beginning to accelerate. We remain positive on the long-term outlook. A lower requirement for third party supply of biomass for Drax post 27 could lead to a supply demand imbalance in the medium term. But as a producer, a user and the seller of biomass, we believe that we're well placed to create value. We are developing a pipeline of sales opportunities for SAF, which we believe could be a major market opportunity for biomass pellets. During the year, we agreed heads of terms with Pathway Energy on a multi-year agreement that could see DRAC supply 1 million tons of biomass pellets each year for production of SAF at their proposed plant in Port Arthur, Texas. In the future, we could potentially supply two additional projects, delivering a further 2 million tons of pellets per year to Pathway sites through the 2030s. So now looking at slide 14. In 2024, Drax Power Station generated over 5% of the UK's electricity, around 10% of its renewable power, and on certain days, over 50% at times of peak demand. Adjusted EBITDA of £814 million was an increase of 16% compared to the prior period, and it reflects a higher level of renewable power generation and system support services in response to a greater system need. Drax Power Station produced 14.6 terawatt hours of electricity, an increase of 27% from the prior period. Our RO units are fully hedged for 2025 and over 80% hedged in 2026. So in total, we have 20 terawatt hours locked in, an average price of over £93 through Q1 2027. In addition, we expect the CFD unit to run at a high load factor for the coming years. These strong forward power hedges, together with a half a billion working capital benefit from the end of the RO scheme at Drax Power Station in 2027, underpin greater than £1 billion of post-tax operating cash flows in the period from 2025 to 2027. And that's prior to the commencement of the new low-carbon dispatchable CFD agreement. So looking at the balance sheet on slide 15. We maintain a strong focus on cashflow discipline and maintenance of a robust balance sheet. Available cash and committed undrawn facilities at the end of the year of 806 million provide substantial headroom over our short-term liquidity requirements. During the year, we put in place over 700 million of new debt maturing in 27 to 29, and we repaid over 900 million of shorter dated maturities significantly extending the group's average maturity profile beyond 2027. We have no significant near-term maturities. Strong financial performance and cash generation is supportive of maintaining our credit ratings. And during the second quarter, the group's issuer credit ratings were reaffirmed as BB plus by Fitch and S&P and as BBB low by DBRS. And that's with a stable outlook in each case. So moving on to slide 16 in capital investment, our capital expenditure of 330 million included 212 of growth expenditure and 83 million on maintenance. The growth expenditure includes 90 million for the OCGTs, over 60 million for pellet production capacity, mainly at the Longview site, and 30 plus million for crew can units three and four expansion. As part of the continued investment to ensure good operational performance of our generation assets, a major planned outage on one unit at Drax Power Station was completed in August of 24, and the unit returned to service ahead of schedule. There are no major planned outages in 2025. We're expecting CapEx to be in the range of £180 to £220 million in 2025. So lastly, looking at capital allocation on slide 17. We will remain disciplined on our capital allocation as we seek to maximise value. Our policy was launched in 2017 and it remains unchanged. It has four pillars. Firstly, balance sheet strength. We define this as maintaining our current credit ratings, which we believe are consistent with our long-term target of two times net debt to EBITDA ratio. Secondly, to invest in our core business. We continue to assess opportunities for the development of our portfolio. And in addition to the group's options for increasing long-duration storage of Kruken, this could also include opportunities in other storage solutions like batteries, which could complement the range of services the FlexGen business can provide. Thirdly, a sustainable and growing dividend strategy. The expected full-year dividend is a 12.6% growth in dividend per share, and over the last seven years since the policy commenced, dividend growth has averaged around 11%. Finally, we'll return surplus capital to shareholders. In August, we commenced a share buyback programme for the purchase of up to 300 million of Drax shares over a two-year period. We are almost halfway through and have bought back over 23 million shares, And the third tranche will commence shortly. With that, we'll hand back to Will.

Thank you, Andy. And now I'm on page 19. And I wanted to provide a bit more of a framework to describe how we're assessing our investment opportunities. First, it's important to realize that the energy transition is creating a wealth of short, medium, and long-term opportunities for investments that have the potential to deliver attractive returns and are also aligned with our capabilities, our purpose, and our strategic objectives. We're also aware of the need to be focused, the need to manage risk, the need to prioritize the highest return and most immediate payback investments, especially given the increasing uncertainty we see not only in the UK, but globally. So first, we're excited about our short-term opportunities. As you know, or as we've said several times already, we're in the middle of our 300 million pound share buyback, and we continue to see a lot of value in our shares. In addition, we're making incremental investments in our pellet business to drive down costs, and then our training capabilities to drive efficiency and more rapid decision making. We're commissioning the open cycles, the OCGTs, which we believe are now more important than ever as the value of flexibility increases. So I think about the medium term. A key investment thesis during my time at Drax is the growing value of flexibility, complementing intermittent renewables and inflexible nuclear. With the retirement of dispatchable fossil fuel plants and the deployment of more renewables and a structural increase in the demand for power, we're now seeing this play out. And we're leaning into this with a 40 megawatt expansion of Cruikin, an 80 million pound program that we expect will deliver an expected return in excess of 20%. And we also see more opportunity to develop and grow our portfolio of dispatchable assets in what we believe is an increasingly attractive market. We see grid connected batteries with two hours and more duration as a potentially attractive addition to our portfolio. And we'll look at both development and acquisition opportunities in that space. In Pellets, we're continuing to develop the Longview project, but we're also assessing the medium-term supply-demand dynamic associated with that project. I think longer term, our first long-term priority is to create a definitive, independent future for the Drax power station beyond the CFD bridge. One option for that is a data center, and I'll talk more about that in a minute. And beyond that, we're continuing to develop further growth options for FlexGen and carbon removals. We remain positive on the opportunities from FlexGen, including the CRUCAN2 or the extension of CRUCAN, on BECCS in the UK and globally, all of which we believe will be required to address the competing challenges of the energy trilemma. That being said, we expect to be quite judicious and the investments that we will make to maintain those options. And as we have always said, any investment in those longer-term opportunities will be subject to the right long-term framework and greater certainty. I'd like to add that the government's recent announcements of a review of greenhouse gas removal technologies, as well as the direction of travel on the long-duration storage cap and floor mechanism, as well as the initial policy moves of the Trump administration, all have increased the level of uncertainty. Just to reiterate that, of which we are very aware. That being said, we want to maintain these options and we will allocate capital to them when we're content with the risk return profile relative to the other opportunities which I've already discussed. I would also say that to the extent we find other ways of advancing our strategy, carbon removals, flex gen and pellets that have more certainty, less risk and more immediate cash flow generation. We are very much attracted to this. Fundamentally, all of this is underpinned by our capital allocation policy, which I believe we've executed with quite some discipline for quite some time. Moving on to page 20. I'm taking the next couple of pages to talk about sort of how our portfolio aligns with some of the things that are happening in the marketplace. So the decarbonization of the system by renewables is a success story, and the UK has led the way, but of course it comes with its challenges and costs. More wind on the system drives intermittency and requires more active management, curtailing wind in certain periods and incentivizing thermal generation in others. This is increasing the cost of managing the system, as well as the opportunity for us to play our part by delivering the services that the system needs. And this has been central to our strategy for a long time. And as you can see on this page, the data absolutely supports it. Over the last six years, we've seen a 50% increase in terawatt hours of wind generation, a 600% increase in the hours of negative pricing, a doubling of system costs, as well as a doubling of public storage activity. So we're increasingly confident in the value we can create from these opportunities. And you can see that coming through in our reported numbers. Since 2019, our FlexGen and Energy Solutions business has delivered greater than $850 million of EBITDA against capital investment of less than $200 million over the same period. We're doing more across our portfolio of pumped storage, hydro, gas, and biomass, which provide exposure to the drivers of value across the power system. On to page 21. And we have exciting opportunities to grow this portfolio, incremental investment in the short and medium term. So we have the 40-megawatt expansion of Kroken, which I've talked about. We have the opportunity to invest in Kroken 2, which I've also talked about. And batteries is a third area, which we've probably talked less about, but I wanna talk a bit about it now, which we're also evaluating opportunity to expand the range of services we can provide, including batteries, which could be added relatively quickly, complimenting the existing portfolio and allowing us to provide a full range of services to the grid across a wider technology base. And for us, batteries fits nicely into our portfolio. It gives us a short duration storage opportunity It takes advantage of our strong trading and optimization characteristics, and we think has nice synergies with the rest of our portfolio. On to page 22. We've been looking at the opportunity to develop a data center for about a year now. And we think that our proposition of a large-scale 24-7 renewable power, secure infrastructure, as well as proximity to the national infrastructure fiber optic network is attractive. And we have a short list of developers we're talking to about the opportunity. We see this as beginning probably before 2030 with a 100 megawatt development, which ultimately could scale to 1.2 gigawatts as we go through the 2030s. And we can provide a long-term behind the meter power source with an off-take agreement at the Brax power station. And it could also be complemented by BECCS. The two things are not mutually exclusive. Similarly, it also works with the post-2027 CFD agreements without the need for additional generation capacity to back up 100 megawatt data center. And even without the generation capacity from our biomass units, we want to emphasize the value that we have at the site. The grid access has value. And I know that Harworth, another site, recently agreed the sale of 48 acres of land with grid access to a data center developer for more than 100 million pounds, which on a comparable pro forma basis would be more than 500 million pounds for 250 acres of powered land at Drax. So we're working with developers now, and we're targeting MOU and due diligence at some point later this year, and we will update you as we have more news. Turning to page 23. We're continuing to target more than 250 million in the long term for our pallet production business, and we made good progress in 24. We improved our output from 3.8 to 4 million tons, and we improved our margins. And the CFD agreement for Jack's Power Station is an important underpin, and we're expecting to use about 2 million tons from our U.S. plants post-2027, again, at a price consistent with our target margins. But as we've said already, we have work to do to deliver the rest of that target. We need to increase production from our existing capacity. We need to add incremental capacity as the demand profile becomes clear. And our long view project is an interesting option for that. We need to renew the existing legacy contracts with aging customers at improved rates and or identify a pipeline for sales into new markets, including sustainable aviation fuel or SAF. On top of these things, we expect to supplement them with efforts to drive operational improvements and efficiencies across our supply chain using AI and also other types of technology. For example, we're researching biomass chemistry and looking for ways to allow us to improve pellet quality while extracting sugars, which could provide a secondary revenue stream from sales into a range of new markets, including animal fields, animal feeds, and ethanol. So we remain positive on the long-term outlook for pellet sales, but we do recognize the changes in demand from Drax Power Station post-27 could lead to some supply demand imbalance in the medium term. For the end, as Andy mentioned, as a producer, user, and seller of biomass, we believe we're well-positioned to create value that might come from any disruptions in the supply chain. On page 24, let me talk a bit more about sustainable aviation fuels So again, we're excited about the potential for this market. As we are about BEX, we think there's multiple new market opportunities for pellets. Specifically in the SAF world, by 2030, forecasters expect this could be about a 5 billion gallon market. That forecast is underpinned by mandates from the UK and the EU, plus targets in North America and Japan. To give you a bit of context, that's less than 5%. of the total markets for aviation fuels. The thing about that, what does that mean in terms of pellets? Well, five billion gallons would be equivalent to more than 100 million tons. It would take more than 100 million tons of pellets to make five billion gallons of sap. But let's be clear, we don't expect that all of that sap will be made from pellets. In fact, maybe 5% or so, or four to five million tons of pellets of that sap, with the rest of the feedstock coming from waste, fats and cooking oil. That's a sort of macro view. On a micro view or from our perspective, again, we have this heads of terms with Pathway for a million ton per year pellet contract that starts in 2019 for a plant in Texas. It's attractive to us because it's domestic to the US, it's close to our DAX assets, meaning it's sort of supply chain. And our deal with Padley has the potential to add a couple of additional sites, meaning there could be about as many as 3 million tons per annum in 2030s with that one customer. So as a reminder, our long-term target for pellets production is 5 million tons. So if you have 2 million at Drax and 3 million through SAF, it could be there even before you include additional European and Asian demand from other uses. On to page 25 on Elimini. So Elimini, our carbon removals company, has had a good year in 24. It was launched formally, a very exciting launch process in New York at Climate Week, and we also established our headquarters in Texas. And we remain positive on the long-term opportunity from carbon removals, but I'd like to emphasize that we think they are long-term opportunities. The market for CDRs, as you can see on the page, is growing. It's predominantly based on BECCS, but it is still small relative to our large-scale greenfield projects. And again, as I said before, we need to have the right regulation, commercial agreements, and macro political environment in place before we commit capital. So our future development expenditure is likely to be slower than it has been. And in addition to looking at greenfield projects, new build options. We're looking at ways of entering the market with lower risk, lower capital commitments, and more immediate positive cash flow. So for example, we're looking at developing a carbon credit training desk, which would allow us to access a wider range of products and revenues before 2030. We're also looking at other ways of developing CDRs, not just using VEX. And I would say we're looking at these would be lower cost and again, smaller capital investments. So we're not really looking at direct air capture, if that's what you're thinking. But again, we remain very positive on the long-term need for carbon removals in BEX in the UK, as well as globally. And as such, we continue a well-progressed option for BEX at Drax Power Station, which we believe can be and should be an important component of the government's plans for net zero in the 2030s and beyond. But again, we require significantly more certainty before committing to capital. And as such, we look to the UK government to provide more clarity on the process from here. create the right investment framework to take these important infrastructure projects forward. So finally, on page 26, we're delivering attractive returns for shareholders with strong operational performance, substantial dividend growth, disciplined capital allocation, and a significant share buyback. We're also delivering for all stakeholders with opportunities aligned to energy security, affordability, and decarbonization. We had a good year in 2024, providing good evidence of our attractive business model, providing support to the UK power system through FlexChem, Drax Power Station and the associated pellet supply chain. The heads of terms for a CFD at the Drax Power Station is a very important inflection point. But again, reminder, we still have work to do to convert that heads of terms into a firm contract. The post-2027 adjusted EBITDA target from flex-gen pellets in the draft power station of 600 to 700 million pounds reflects growing confidence in our medium to long-term outlook. On strong cash flow generation and attractive growth opportunities, we will approach those in a disciplined manner to maximize returns and minimize risk. So thank you for listening to that more lengthy than usual discussion, and we look forward to taking any questions. Thank you.