LONDON (Alliance News) - Drax Group PLC Tuesday said it swung to a pretax loss in its first half and lowered its interim dividend, as higher revenues were more than offset by significant costs during the period.
The FTSE 250-listed UK energy provider posted a pretax loss of GBP10.8 million for the six months ended June 30 compared with a pretax profit of GBP205.6 million the previous year.
In May, the company said it was expecting earnings to be below market forecasts as power prices had fallen by more than expected, leading to weaker gas markets, and as renewables obligation certificate's prices also fell.
Drax said at the time that since publishing its preliminary results on February 18, mild weather across Europe had led to weaker gas markets and a further fall in power prices, while abnormally high amounts of wind generation had pushed down the price of its renewables obligation certificates prices.
On Tuesday, the company said its revenues increased 37% to GBP1.26 billion from GBP918.5 million due to an increase in generation.
However, Drax said its cost of sales increased 49% to GBP1.05 billion from GBP702.5 million due to the higher costs of burning coal, lower prices and higher grid costs, leading to a 98% fall in the company's operating profit.
As a result, the company dropped its interim dividend by 46% to 4.7 pence per share from 8.7 pence per share in the previous year period, which is in line with the company's policy of delivering 50% of underlying earnings via dividend payments.
"As expected, in the short term the increasing cost of the UK carbon tax drove EBITDA down year on year," Chief Executive Dorothy Thompson said in a statement. "We have been investing significant capital to transform Drax into one of Europe's largest renewable-power generators, burning sustainable biomass, thereby improving the long-term value proposition for the group."
Drax said 23% of the company's output is now from biomass, and its first converted unit is performing very well. The company plans to convert three more of its six power plants to burn biomass in the future.
Drax recently was granted an investment contract for its third Drax power plant under the UK government's contracts-for-difference scheme, a subsidy for low-carbon electricity generation, but its second unit conversion did not receive the same support, leading to a court case between Drax and the UK Department of Energy and Climate Change.
Last week, following a High Court ruling in Drax' favour, DECC said that it intends to award Drax the investment contract for its second power plant conversion to burn bio-mass in place of coal but that it was appealing the court decision.
"Our underlying business case remains strong. In 2016, half of Drax Power Station will be fuelled by sustainable biomass, delivering 4% of the UK's electricity. Through this transformation we will provide cost-effective, low carbon and reliable renewable power to the UK consumer," Thompson said.
Drax shares were down 0.5% to 690.00 pence Tuesday morning, having fallen to 679.00 pence immediately after the open.