Drax unphased by massive earnings dip

Selby, UK - Power station operator Drax is looking forward to improved profitability, despite reporting an almost four-fold drop in first-half operating profit to £43 million on revenues 12% lower at £707 million.

The Selby-based group blamed the declines on lower power demand and depressed UK gas prices. Meanwhile,  an approximate 30% decline in EBITDA to £150 million was said to reflect decreases in average achieved power price and power sold, partially offset by lower fuel and carbon costs.

Indeed, Drax is sticking with its previously stated expectations for core profits for the full year. However, an extra £30 million of earnings and cash has been received through foreign exchange contracts, £25 million of which will be posted in the second half of the year.

Chief executive Dorothy Thompson said: "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. 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.'"

In addition to its hedging strategy, the company's carbon abatement projects are said to be on budget, with the group halfway through a turbine upgrade programme as well as the construction of a biomass co-firing facility.

Once completed, the biomass facility is expected to deliver a saving in carbon emissions of up to 17.5% by 2011 and will increase the company’s power station co-firing capability to 500W, equivalent to 12.5% of its total output.