AGM Statement
Drax Group PLC
12 May 2006
Drax Group plc holds its AGM today at the City Presentation Centre, Chiswell
Street, London, at 11:00am. At this meeting Gordon Horsfield, Chairman of Drax
Group plc, will provide shareholders with the following update:
'Good morning Ladies and Gentlemen, welcome to the first ever Annual General
Meeting of Drax Group plc.
Today I will review the Company's 2005 activities and performance, developments
in 2006, and also provide an update on the Board's intentions regarding the
return of cash to shareholders beyond the company's needs.
Firstly, though let us start with our 2005 performance compared with 2004.
• Revenue from Generation up 55% to £849 million
• Average capture price of electricity up 51% to £33.9/MWh
• Net sales of 23.2TWh; an increase of 0.3TWh
• Gross Margin increased by 63% to £389 million
• EBITDA increased by 166% to £239 million
• Although not directly affecting in a material way the results for
2005, we also saw improved trading counterparty interest from 15 December 2005
onwards following the enhanced credit status of the Group upon refinancing and
listing
• Very importantly, we achieved the best full year performance in forced
outage rate since 1997
• Total recordable injury rate down by 39%
I believe these results reflect great credit on everyone in the Drax team. Not
only were there the inevitable pressures and distraction posed by work which had
to be done throughout much of the year to prepare Drax for re-financing and
listing, but during the Autumn they also had to deal with three separate
indicative bids for the company.
Turning briefly now to 2006.
As notified in our Preliminary Results presentation, towards the end of next
month we intend to issue a Trading Statement which will include an update on
our contracted position.
Since our results presentation, it is noteworthy that gas prices have remained
relatively high by historical standards and gas plant continues to be the
marginal price setter for power in the market. As a consequence, with coal
prices having remained relatively stable, market conditions have continued
favourable to coal-fired generators; this has been helpful whilst we have driven
forward our trading strategy of deepening and extending our hedged position.
In that context, we were pleased to be able to announce our power sales
agreement with Centrica which was signed in early April. The contract is in
line with our published trading strategy. It secures the sale of roughly the
equivalent of the output from one of our six units for just over five years
commencing in October 2007 and, importantly it leaves Drax with the option to
satisfy the obligation to deliver electricity either from our own production or
by purchasing power in the market, should that be cheaper than our marginal
costs of production from time to time.
Turning now to our distribution policy.
When we announced our preliminary results on 8 March we took the opportunity to
reaffirm our distribution policy of paying an annual basedividend of £50m per
annum (payable in line with normal listed company practice) and additionallyto
distribute substantially all of any remaining cash flow subject to the
availability of reserves and after making provision for debt payments, debt
service requirements (if any), capital expenditure, and other expected business
requirements.
In respect of our base dividend we advised shareholders in our preliminary
announcement that we intend to pay an interim dividend in respect of the 6
months to 30 June 2006 of 4 pence per share, being approximately £16.3m, being
payable in the Autumn.
We also reported that the outlook for 2006 was positive, that significant cash
surpluses are expected to arise in 2006, and that we therefore expected to make
our first additional distribution in the current year. We further reported that
work had commenced to identify the most appropriate method for returning surplus
cash and that we expected to be able to advise shareholders at this AGM of the
proposed method of return. This would then be followed by an indication of the
likely range of distribution, timing and shareholder approval process in a
Trading Update at the end of June 2006.
I am pleased to be able to confirm that our programme remains on schedule and
that we are now able to confirm the proposed method of returning excess cash to
shareholders.
After due consideration, and having consulted with its advisers and having
received feedback from investors following our results presentation, the Board
has concluded that the most appropriate means of returning excess cash would be
by way of a special dividend..
In reaching this conclusion a number of factors were taken into account. We
recognised a desire to pass surplus cash to shareholders in a timely and
transparent manner, both on this occasion and indeed on future occasions.
Additionally, noting the expectation of future distributions, the need for
simplicity and certainty of execution were also important.
As is common when paying special dividends the declaration of the dividend will
be accompanied by a resolution, to be considered by shareholders at an
Extraordinary General Meeting which we expect to be early in October, to
undertake a share consolidation. Such a consolidation will allow 'before' and
'after' comparisons to be made more easily and will also ensure that employees
are not unfairly penalised under the all-employee share SAYE scheme.
Incidentally, we expect to make the first grants of SAYE options on 23 May 2006
and at the same time to make an allocation of newly issued shares to each of our
626 qualifying employees, with a market value (determined according to the
scheme rules) of £2,000 per head, under the Revenue-approved share incentive
plan.
Under the terms of our existing debt arrangements we have taken advantage of the
facility to raise additional debt. We have signed a loan agreement for £100m,
the maximum permissible. The proceeds will be used to refinance the £57.5m of
principal scheduled for repayment on 30 June 2006 and we are currently reviewing
whether there is a requirement to partially reduce the deficit under our final
salary pension scheme which stood at £44.7m at the end of December 2005. Any
excess proceeds from the new debt will be included within the special dividend.
As previously intimated, we continue to keep our capital structure under regular
review but we are unlikely to undertake a major refinancing until we have made
further progress in executing our trading strategy, until the present
uncertainties surrounding our allocation of carbon for phase 2 of the EUETS
covering 2008-2012 are removed, and until we are able to assess any possible
implications for the Group of the Government's Energy Review, the results of
which will not be known until the Autumn of this year at the earliest.
Nevertheless, we hope that the intention to make our first ordinary dividend
payment, the intention to pay a special dividend in the current calendar year
and the additional debt facility of £100m will send a clear signal to
shareholders that we are a company which will deliver on our promises, including
our policy to secure alignment of our trading and operational strategies and our
capital structure.'
Enquires:
Investor Relations
Andrew Jones
+44 (0) 1757 612 938
Media
Tulchan Communications
David Trenchard and Peter Hewer
+44 (0) 20 7353 4200
Website: www.draxgroup.plc.uk
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