Drax Group said Tuesday it will be investing significant capital to transform the business after the power station firm posted a 4.4 per cent fall in annual earnings.

The FTSE 250 group reported underlying earnings of £193m for the year to December 31st 2012, down from £202m the year before.

Profits before tax came to £190m, a 43% drop from £338m in 2011, missing analysts estimates of £220.52m.

The company said the year-on-year reduction reflected higher operating costs which included the group's transformation into a predominantly biomass-fuelled electricity generator.

Drax last year received a £100m amortising term loan facility with the UK Green Investment Bank and a £400m revolving credit facility maturing in April 2016 for the project.

Total capital costs for the biomass transformation range between £650m to £700m for delivery, storage and distribution infrastructure for biomass fuel along with plant modifications for a three unit conversion.

"Last year was pivotal for Drax. After ten years developing significant knowledge and experience in all aspects of using sustainable biomass in place of coal at our power station, we now have the mandate, means and expertise to transform the business into a predominantly biomass-fuelled generator," Dorothy Thompson, Chief Executive of Drax, said.

"With government support and our financing secured, both in the second half of 2012, we are on track to convert our first generating unit fully to biomass in April of this year, with the second to follow in 2014.

"We will be investing significant capital over these two years, as we transform the business."

The company reported earnings per share of 44.1p, a 65% plunge from the 127.3p the year before. Underlying earnings per share decreased 6.4% to 51.9p from 55.5p.

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) fell 10.7% to £298m.

Thompson said the EBITDA over the next two years will be affected by increasing costs of carbon.

"However, as we move beyond this investment phase and replace substantial quantities of coal with sustainable biomass, we are confident that we will deliver attractive returns for our shareholders, who have provided us with strong support," she said.

"This transformation will also provide reliable, cost effective renewable power for consumers and secure a significant number of jobs both at Drax and throughout our supply chain."

Dividends of 25.3p per share, down from 27.8p, will be distributed to shareholders.

RD

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