Drax Earnings Drop as Profit Margin Narrowed in Fourth Quarter

By Paul Dobson

March 3 (Bloomberg) -- Drax Group Plc, owner of western Europe’s biggest coal-fueled power station, said earnings fell 6 percent in 2008 on lower profit margins.

Net income dropped to 333 million pounds ($470 million), or 98 pence a share, from 353 million pounds, or 99 pence, a year earlier, the Selby, England-based power producer said today in a statement distributed by the Regulatory News Service. That beat the 278 million-pound median estimate of nine analysts in a Bloomberg survey.

Drax’s earnings depend on the U.K. clean dark spread, a measure of profit for coal-fired plants that allows for fuel and carbon-dioxide emission costs, and wholesale power prices. The company’s shares are trading near a record low on speculation profit margins will narrow further as the economic slowdown reduces energy consumption.

U.K. power output fell 4.3 percent in the fourth quarter, government data show. The worst recession since World War II is curbing demand as businesses cut production and jobs. Germany’s RWE AG said Feb. 26 that below-average temperatures in the first months of this year countered a decline in power use by industry.

Drax Chief Executive Officer Dorothy Thompson is taking steps to cut the volume of carbon emissions per unit of electricity produced. She’s planning as much as 500 megawatts of output from the 4,000-megawatt Drax power plant to come from organic matter instead of coal.

The company also intends to build three biomass-fueled power stations in the U.K. with Siemens AG, generating as much as 15 percent of the country’s renewable power in 2014. The plan has required a change to Drax’s dividend policy, allowing it to keep 50 percent of earnings starting 2010.

Still, the investment in alternative energy won’t protect the company from a new government levy on electricity producers and suppliers to fund a program that will cut fuel bills in homes and improve energy efficiency.

The dark spread measure has fallen to about 13.50 pounds a megawatt-hour from almost 40 pounds on Sept. 26, according to calculations for rolling year-ahead prices based on energy- broker data.

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net