Drax Group plc

Thank you and good morning everybody. I appreciate you all joining the call. I'm joined on the call by Frank Lemmink, our CFO. I'll provide an overview of the first half before giving it back to Frank to take you through the numbers. And then I'll take you back, take it back to take you through the progress we're making on our growth strategy and we're then happy to take your questions. We've delivered a good first half performance. underpinned by a continued focus on safe and efficient operations. We provided around 6% of UK power and 10% of UK renewables. In May, we commenced operations of Hirwan Power Station, adding another 300 megawatts to our portfolio. And we continue to upgrade two units at Krookum, which will add a further 40 megawatts. And over the last eight months, we've made tremendous progress on our plans to invest in flexible and renewable generation. adding flex electricity and over 700 megawatts of owned and tolled batteries. Reflecting these developments, we're now targeting an increased group EBITDA from 650 to 800 million in 2029 once those BEZ developments are fully operational. And these numbers are before the proposed acquisition of Bluefield Solar Income Fund, BSEF, or developing any of the further best solar or wind options that we have. At Drax Power Station, we're continuing to develop options to utilize four gigawatts of capacity, including a data center. And as we progress these opportunities, we remain committed to our capital allocation policy and delivering attractive returns for shareholders. So on page four, I want to spend a little bit of time on this slide as it demonstrates how we have repositioned our business. We increasingly manage, by which I mean generate, trade, optimize, or provide route to market or tolling services, many different types of generation and storage. Each one of these activities will create value in different ways for the group and for the UK system, leveraging our capabilities and experience. Our thesis is that the UK energy transition will continue to move at pace, and we are positioning our company to grow with that transition. We expect power demand to grow significantly, and we expect this demand primarily be met by renewables, which will require more flexibility on the system. So since 2018, we've grown the business and transformed from a single site operation with 2.6 gigawatts of biomass to a four gigawatt portfolio of pumped storage, hydro, biomass, and route to market capacity at the end of last year. And I want to highlight the route to market services we provide to small scale solar and wind plants, over 2000 sites and 800 megawatts, which generate on the order of 10 million pounds of earnings per year. And for reference, that is also what we will be doing for the Bluefield portfolio, which is of a similar size. Now over the course of this year, our portfolio will increase to 6.1 gigawatts. The addition of our first OCGT site here one which is I will talk more about it in a minute. Further route to market capacity via flex electricity, which we've already got, and the acquisition of Bluefield, which is expected to close tomorrow. Now beyond that, we have development projects already post-FID that will grow our megawatts under management to 7.4 gigawatts in 2029, giving us multiple generation technologies across renewables and flexible generation. Not to mention the significant development options we have beyond that. Interestingly, our strong position in FlexGen means we're able to develop options for solar and wind from a position of strength and the ability to manage those assets within the portfolio. In June, we announced the proposed acquisition of BSIF, a UK listed investment fund, which operates a UK portfolio of about 900 megawatts of operational solar and wind assets, in addition to a development pipeline of 2.9 gigawatts, which we will assess in line with our capital allocation policy. For the financial year ended June 30th, 2025, EBITDA was about 130 million, the high level of contracted cash flows. And to be clear, the earnings of BSIF are not included in the 650 to 800 million EBITDA target that I outlined before. To update you, a BSIF shareholder vote took place on the 24th of July and 99% of shareholders voted in favor of the acquisition. A court hearing to approve the scheme is due to take place tomorrow, the 31st of July, after which, meaning later that day, the acquisition is expected to complete. So the acquisition supports UK energy objectives and strategically moves us to having three substantial generation businesses, biomass, flex-gen, and solar and wind. The acquisition is highly complementary to our existing operations, offering or adding structured and stable cash flows underpinned by longer-term renewable incentive schemes and PPAs, which complement the higher but potentially more volatile cash flows associated with FlexGen. Beyond that, we see an additional opportunity to unlock significant further trading and optimization margins and operational and energy services synergies. We expect to provide more detail on BCIP in September. At the end of May, Kirwan Power on new 300 megawatt OCGT commenced operations and you can see it on the slide there. The power station represents an investment of over 100 million pounds in South Wales, supporting energy security, electrification and economic growth for the whole of the UK. and Frank will provide some additional and quite interesting detail on how it's performed in a few minutes. Kirwan's sister sites Millbrook and Progress are expected to commission from late this year through 2027. This is later than was expected and reflects delays by the relevant authorities in connecting the sites. Nevertheless, once fully operational, the three stations will provide combined capacity of around 900 megawatts and be remunerated under 15 year capacity market agreements worth around 260 million pounds. And of course, those capacity payments are additional to revenues we expect to generate from both heat power generation and system support services. Sustainability, important as always, is an area where we continue to make progress against climate, nature and people initiatives. Recognition of this progress came in January with a CDP AA rating. And in March, MSCI upgraded drafts from single A to AA, reflecting our environmental disclosures, climate transition planning, and continued implementation of a group-wide sustainability framework. Now I'll pass it over to Frank. He'll take you through some of the numbers.

Thank you, Will. And good morning, everyone. As Will said, we have made tremendous progress executing our strategy, increasing our FlexGen capacity with OCGTs, Krugan expansion in process, and our investments in BAS. We are expanding our trading and optimization capability by bringing Flexitricity Platform into the portfolio, and we are adding a new branch with BESIF Solar and Wind portfolio, as well as a significant pipeline of development options. On a personal level, I'm really happy to be part of this and solving the strategic puzzle and implementing our strategy at Drax. So we have a strong business today and we will enhance our value through delivering our strategy. Our balance sheet is strong. We are generating cash flows which can support value accretive growth and returns to shareholders. But we must operate well and safely and execute our plans diligently to realize this. This includes delivering the value from our acquisitions. So in the first half of 2026, we performed well. Good results generating 279 million of adjusted EBITDA. This is lower than in 25. That was expected and reflects lower achieved forward power prices year on year. Adjusted earnings per share of 29.8 pence was a decrease on The first half of 2025 and this of course reflects the reduction in EBITDA and also non-cash foreign exchange movements which were partially offset by a lower depreciation and amortization charge. Net debt of 1.025 billion was 1.3 times the last 12 months EBITDA and this remains significantly below our long-term target of around two times. and this does not include the impact of the Group of BeSafe acquisition. Total cash and committed facilities was around 630 million, which is a strong position and this supports our growth plans for the Group. Our expected full-year dividend of 32.2 pence per share is an 11% increase on 2025, in line with our long-term growth rate. This reflects the confidence we have in our business and as is our custom, we propose to pay 40% of this as an interim dividend, which equates to 12.9 pence per share. Then the final leg of our capital allocation policy is returning excess investment capital to our shareholders. And we have returned 47 million via share buybacks year to date. Then moving on to the next slide, talking a little bit more on the performances by our businesses. Starting with our pellet production and biomass generation business, which we see increasingly as interlinked through the vertical integration between our operations in the US South and the Drax power station. Pellet productions EBITDA reduced from 74 million in the first half of 25 to 64 million in the first half of 26. It was a function of reduced volumes because of plant closures and outages. And we also showed continued progress on cost reductions reducing the cost per ton of biomass produced. And this reduces the headline size of our pellets business, but because these are internal sales to our Drax power station, this actually reduces the costs that are passed through to our generation business, resulting in a lower cost of biomass feedstock as part of a well established cost plus transfer pricing methodology. Then talking about biomass generation, which has performed well and continues to produce large volumes of renewable electricity and system support services, inclusive of a major plant outage. And as I mentioned, the business also benefits from the cut reductions in the US South and therefore lower prices of internal pellet supply. Our FlexGen business then, EBITDA reduced from the previous year, This is because of an unplanned outage on the Kroeken units 3 and 4, which is caused by a grid connection failure of assets owned by Scottish Power Energy Networks, or SPEN. And as Will noted, planned outage work on these units continues as part of a turbine upgrade, which will in due course add 40 megawatts of new capacity. Despite the headwind from these outages, the units 1 and 2 performed very well and maintain a very high utilization rate. Year 1 has also performed well. We have received capacity market payments for the full six months this half year. And since commencing operations in late May, we have been providing power generation and system support services as well. I will talk more about that shortly. Flexitricity performed in line with our expectations and energy solutions or industrial and commercial INC business performed well as well. It maintained a broadly consistent margin on a small revenue base against a background of lower contracted power prices. So a really good result. Then finally, development expenditure, development spend has reduced as we have been very disciplined in allocating capital to large capital projects against a market backdrop that does not currently support significant investment in carbon removals. This is in line with some of the expected cost savings that we highlighted at our full year results earlier this year, and we are now realizing this. Then a little bit more on Hirwan, and I think this is a very interesting slide. In its first month of operations, HeerWand performed very well. Our OCGTs are designed to operate at times of peak demand, which we normally expect to be focused on winter periods. However, reflecting high summer temperatures and lower wound speed, we saw significantly higher demand for HeerWand services in power generation and balancing markets. In addition, HER1 is fitted with a clutch mechanism, which allows the turbine to synchronize with the grid in a non-generation mode, helping to stabilize the system without producing any electricity. In total, the station operated in this mode for around 440 hours in June, which is around 60% of the time, as you can see in the graph. as well as operating in the wholesale and balancing markets. And we see this flexibility and breadth of the market opportunity as a source of value to us, but also an essential surface to the system providing stability to the grid, which is absolutely essential. As power demand grows and the system evolves to include more intermittent renewable and inflexible generation, we expect these themes will become more pronounced and this informs our investment case for flexible generation and is also why we believe that having three of these OCGGs over time in our portfolio will be value generative. Then moving on to the balance sheet. Maintaining a strong balance sheet remains a key priority. We have no significant maturities remaining in 26 as you can see. The acquisition bridge facility will become available upon the completion of the BSEF deal and many more. And then we have expanded maturities on some of our facilities in the first half of this year as well and because of that we have significant headroom over our short-term liquidity requirements as you can see. Credit ratings then. Following the BCIF acquisition process, we have engaged all three of our rating agencies and all three of them have reiterated our crossover credit rating after the announcement of the proposed BCIF acquisition. They note the diversification benefits and improved business risk, earnings quality and debt capacity. And these conclusions support our ability to grow our business whilst maintaining a strong balance sheet. Moving on to capital investment, we have continued to invest in growth and in our core business, including BES, pump storage, and the OCGTs. The ongoing plant outage at Drax Power Station is progressing well. And we continue to target between 210 and 250 million of capital expenditure for the year, and this excludes our acquisitions. Flexitricity has completed, as you know, and BESIF, as Will said, could be finalized tomorrow. Then a bit on cost management. Strong cost discipline is an integral part of our culture. Being disciplined on cost supports our upgraded to 2029 EBITDA target. We are making good progress, putting in place the structures and plans to allow us to succeed and deliver long term value to stakeholders. This includes both staff cost reductions and reduction in third party costs. Earlier this year, we set out the target to establish structural savings of over 150 million per year by 2027, compared to a 2024 base year. We are making really good progress and we will continue to keep an iron discipline with regards to cost control. This is something which I've done successfully in my previous company and something I'm seeking to embed deeply within the direct culture as well. Then, Finally, our capital allocation policy. This policy remains unchanged and is at the heart of our financial decisions that we make to make sure that we can successfully deliver growth, value and income to shareholders. Our balance sheet is strong and we remain committed to a long term target of around two times net debt over EBITDA. We will continue to invest judiciously in the core business to deliver safe and efficient operations and deliver options for growth in flexible and renewable energy. Our return to shareholders remain a critical part of our investment proposition and since 2017 we have returned over 1.2 billion via dividends and share buybacks. Since 2017 the dividend per share has grown on average by 11% per annum including an expected increase of 11% in 2026. Income returns to shareholders are an important part of our investment case and we remain firmly committed to our policy to pay a sustainable and growing dividend. And then lastly, to the extent there is a surplus of capital beyond our investment requirements, we will consider the best way to return this to shareholders. The buyback as you know is currently on pause. and we will evaluate this program along with the growth opportunities that are available to us. So I'm excited to be here. I'm very pleased to share these results with you and I look forward to discussing them with you further in due course. And with that, Will, I hand back to you. Thank you, Frank. I appreciate that.

I move on to page 18. So NISO's future energy scenarios show power demand is likely to double over the next 25 years. driven by the electrification of heating, transport, and new industrial demand like data centers. To help meet this demand, there will need to be up to a seven-fold increase in wind and solar, while at the same time, unabated gas is expected to retire from the system, meaning that while carbon emissions will reduce, the system also will become progressively more dependent on intermittent renewables as well as over time on inflexible nuclear power. As a result, there's likely to be either too little or too much power on the system at any one point in time. So this system transition creates opportunities for significant investment in renewables as well as in flexible generation, principally in BEZ, which NISO believes could quadruple in capacity. So again, as you can see, we think there's a very strong tailwind driving our investment thesis, right? and I would also note that we have a strong view that existing cash flows from incumbent assets are particularly valuable in a world in which it's difficult to connect additional capacity to the grid. We've structured our BEZ investments to account for this risk and the proposed BSEF acquisition is another example of how we're addressing it. As you know, we're developing a gigawatt scale pipeline of BEZ opportunities. which complement our existing flexible generation portfolio. Having the right assets in the right location at the right time will be critical to success, as will having the tools to manage the portfolio effectively. And we are making outstanding progress in this area and have committed about 500 million pounds for over 700 megawatts of capacity, as well as acquiring Flexitricity. Now, as you know, we see two principal and slightly different routes to creating value from this. Firstly, the ownership of physical assets, where we believe the locations that we have chosen are optimal, and where there are opportunities to invest in the sites further over the long term. We've acquired three development projects for 260 megawatts under a fixed price deal, with structures in place that protect us in the event of cost or schedule overruns. That deal also gives us option rights over an additional 289 megawatts of capacity. The second route is through floors and tolls, which provide us with an additional opportunity to access the BEZ market and use our deep expertise in trading and optimizing flexible assets. In that space, we've entered into agreements for 450 megawatts of tolls with the developers, Fidra and Zenobi. We will pay them a tolling fee in return for which they will They are responsible for building, maintaining, and making the assets available for us to optimize. We will keep all the revenues from operations other than capacity payments and certain other immaterial ancillary revenues. Importantly, both projects have now taken FID. And finally, the final piece of this puzzle is Flexitricity, which provides a scalable, best-in-class platform for optimizing those assets, both for ourselves and also for third-party owners. So turning to the next slide. So we're growing a balanced portfolio in the UK. And let me provide a little more color on how we're expecting to do that. So first, we have an existing portfolio, an existing set of expertise that operates across the UK power system today. We operate and trade large scale generation assets, Strax Power Station, Kruken, our first OCGT, and Hydropower. and as you know we're developing those attractive portfolio of BEZ assets. Now the second thing that we do is we provide route to market services for BEZ wind and solar assets both through our existing business and also through Flexitricity which we've just recently acquired. In combination that gives us close to two gigawatts for over 2000 small renewable assets as well as grid scale assets. Thirdly, were already a major player in the INC supply space, giving us significant insight into the demand side of the equation. So it's logical for us to grow that portfolio by adding solar and wind, which we're starting to do by adding almost a gigawatt through the Bluefield acquisition that again we expect to close tomorrow. So beyond that, we would look to grow the portfolio across the piece, by developing the significant opportunities for growth that we already have. And just by way of example, BCF brings a pipeline of options in BEZ and solar with over 500 megawatts of projects which already have 15 to 20 year CFDs as only a small part of their overall development pipeline of 2.9 gigawatts. And we will also look to further M&A as and when appropriate. So you put that all together, and we already have strong visibility of growing our megawatts under management that underpins our upgraded expectation for EBITDA in 2029 of between 650 and 800 million. And again, please note, which I'm sure you guys have all done, that this does not include BSIF, which as we have said already adds another, well, sorry, delivered EBITDA of 130 million in 2025. But if you put that all together and you say, well, what is the portfolio that we have the opportunity to develop? We have the potential to grow to 12 gigawatts of operational assets, including what we've already got, what we're already building, and options on sites that we already have. And all of that is before we start even talking about DPS, which we'll do now. So if I go to page 22, The Drax Power Station site, as you know, located centrally in the UK and next to one of the country's largest substations, includes over 1,000 acres and has 4 gigawatts of grid access. It already has 2.6 gigawatts of flexible renewable generation running and has cooling systems on a secure site very close to the UK's fiber optic network. Now, as a first step, it's already the UK's largest power station, as you know, and we expect biomass generation to continue to play a long-term role in meeting UK energy demand. On top of that, we're developing plans for a data center, which I'll talk about in a minute. On top of that, we're also evaluating options to utilize inactive legacy infrastructure to provide system support services. For example, we can use power from the grid to rotate and synchronize the legacy units to the grid to provide inertia and voltage management, thereby helping to stabilize the system in exactly the same way as Frank mentioned that the OGGTs operate in clutch mode. Finally, in the long term, we are also exploring opportunities to utilize 1.4 gigawatts of non-biomass grid access for new generation. So let's talk a little bit about the data center. So the size, location, and infrastructure of the site make the Vax Power Station a good fit for a data center, and we're continuing to develop an option to do that. And as soon as we have more details, we will share those with you. What I can say is the following. It'll be a three-phase project, the first phase for about 100 megawatts, using existing infrastructure and transformers to import power directly from the grid. And we will be submitting a planning application for that 100 megawatt data center in the second half of the year. Beyond that, we have two more phases that are both behind the meter. The second phase aims to utilize about 500 megawatts of capacity before 2031. And as you know, this is still during the period of the CFD. And so that will be subject to agreement with the UK government. And while we haven't had substantial discussions with the government, we are clearly making them aware of our progress as we work on this. And the third phase would follow from 2031 afterwards, adding further capacity up to a gigawatt and beyond. Ultimately, this development will represent a multi-billion dollar foreign investment in the UK, creating thousands of jobs while continuing to support energy security through 2031 and beyond. So turning to page 25, just in short summary, So we performed well again in the first half of 2026. We're already a leading provider of flexible renewable generation in the UK and we're taking advantage of a great opportunity to grow that position and develop a full-fledged multi-technology generation portfolio including solar and wind. We've absolutely begun at pace that investment program as I've described and look forward to growing our business through the rest of the decade and well beyond. creating value by investing in the UK energy transition. And of course, as we always have been, we will be disciplined in how we approach these opportunities in line with our existing capital allocation policy, and we will be laser focused on value creation. And let me close by returning to what I said at the start. The UK needs to meet a growing demand for power. while maintaining energy security in a cost effective manner and continuing to decarbonize. That is the essence of the energy trilemma. And we believe we can play a significant role in meeting all three of those needs. Since 2018, we've grown our business from being a single site 2.6 gigawatt biomass generator to being a multi-site portfolio with a range of generation technologies and route to market services. We already have More than visibility, we have clearly plans and capital in place to grow that portfolio through the end of the decade across multiple technologies to 7.4 gigawatts under management, almost doubling the position that we had at the end of 2025. In doing so, we make tracks of business focused on a broad range of flexible as well as long-term contracted intermittent renewables. Beyond that, We have a pipeline of further opportunities in both flexible generation and renewables, as well as the Dax Power Station, which together represent around 12 gigawatts of operational assets that we can own or manage, as well as having opportunities for further growth. And in taking these actions, we believe we can deliver value for our shareholders, all of our stakeholders, while at the same time supporting the UK energy objectives and promoting economic growth. and of course we will update you in due course as we roll out this investment plan. With that, we're happy to take questions.