Energy producer Drax's earnings came in ahead of expectations after what the firm modestly claimed was a year of continued operational excellence.
Underlying earnings per share declined to 55.5p in 2011 from 63.9p in 2010 but was ahead of the 52.6p expected by the market. The 2010 earnings benefited from the accelerated hedge which Drax put in place during 2008 when wholesale margins were higher.
Total revenue grew to £1,835.9m in 2011 from £1,648.4m in 2010. Earnings before interest, tax, depreciation, amortisation (EBITDA) and other one-off items retreated to £333.6m from £391.9m the year before but statutory profit before tax climbed to £338.1m from £254.9m in 2010, as this time round the company booked unrealised gains on derivatives contracts of £89.8m versus paper losses the year before of £60.5m.
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Dividend income is important to the typical Drax shareholder, and while the full year payment has been reduced to 27.8p from 32.0p last year, this was ahead of the 26.2p expected by the market.
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The group ended 2011 with net cash of £225m which Chief Executive Dorothy Thompson said provides a solid foundation for future investment in the business.
Drax is a coal-fired power station operator but is keen to move to a more ecologically sustainable source of fuel.
Thompson said the company is ready to transform itself into a predominantly renewable generator, "but to do so we need appropriate regulatory support, and to that end we look forward to the timely conclusion of the government's current review."
The group is awaiting the government's decision on new levels of support for power generators using "biomass" - biological material from recently living organisms, such as food waste and agricultural residues.
"With a moderate uplift in the proposed support level we could, over time, maximise the potential for producing this low cost renewable electricity," Thompson maintained.
On an operational level, Drax said its forced outage rate, which measures any reduction in plant availability excluding planned outages, rose to 5.8% in 2011 from 3.4% in 2010, while the availability rate slipped to 88% from 92%, but noted that this was still an "industry leading performance," all while keeping a tight lid on costs.
The company could not do much about external costs, however, and fuel costs rose to £1,021m in 2011 from £841m in 2010. The average cost of fuel per megawatt hour (MWh)was £33.3, compared to £25.7 in 2010. The increase in average fuel prices was driven by fuel mix, in particular higher sustainable biomass burn following the research and development work undertaken by the group, and by commodity price movements, especially coal.
"We enter 2012 with a strong hedge from forward power sales, which were secured at good margins. However, there is little visibility in our markets beyond 2013," admitted Thompson.
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