Drax half-year results 2026: dividend rises despite sharp earnings decline

Drax Group's first-half numbers contain two rather different stories. Current earnings are down sharply, mainly because of lower achieved power prices, while management is committing substantial capital to build a broader flexible and renewable generation portfolio.

Adjusted EBITDA fell to £279 million from £460 million, and adjusted basic earnings per share more than halved. However, Drax Group PLC maintained its full-year expectations and increased the interim dividend by 11.2% to 12.9 pence per share.

The question for investors is whether Drax can manage this transition without placing too much pressure on cash flow and the balance sheet. The original company announcement suggests management believes it can, although the proposed acquisition of Bluefield Solar Income Fund adds another major moving part.

Drax's key half-year figures

Measure	H1 2026	H1 2025	Change
Adjusted EBITDA	£279 million	£460 million	Down 39.3%
Operating profit	£265 million	£301 million	Down 12.0%
Profit before tax	£222 million	£281 million	Down 21.0%
Adjusted basic EPS	29.8p	65.6p	Down 54.6%
Interim dividend	12.9p	11.6p	Up 11.2%
Cash generated from operations	£79 million	£378 million	Down 79.1%
Capital investment	£85 million	£59 million	Up 44.1%

Adjusted EBITDA means earnings before interest, tax, depreciation and amortisation, excluding exceptional items and certain accounting remeasurements. It is management's preferred measure of underlying operating performance.

The headline decline is substantial, but it was not caused by a collapse in generation volumes. Drax Power Station generated 7.0TWh, compared with 7.1TWh a year earlier. Instead, Biomass Generation adjusted EBITDA fell from £332 million to £159 million, predominantly because achieved power prices were lower.

Pellet Production adjusted EBITDA declined from £74 million to £64 million, while Pumped Storage and Hydro dropped from £64 million to £47 million. Energy Solutions was the brighter spot, with adjusted EBITDA rising from £18 million to £27 million.

The dividend provides some reassurance

Despite weaker earnings and operating cash flow, Drax declared an interim dividend of 12.9p per share. Management expects the full-year dividend to rise by 11.0% to 32.2p, compared with 29.0p for 2025.

That would extend Drax's record to ten consecutive years of dividend growth. The group says the average annual increase since 2017 has been around 11%.

This is a clear statement of confidence in future cash generation, but it comes alongside a more cautious approach to buybacks. Drax returned £48 million through share purchases during the period, including £41 million under its buyback programme. That programme has now been paused while the company assesses the balance sheet impact of the proposed BSIF acquisition.

For shareholders, the message is straightforward: the dividend remains central to capital allocation, but further buybacks have become secondary to investment and acquisition funding.

Cash flow is the main weak point

Cash generated from operations fell from £378 million to £79 million. This reflected lower adjusted EBITDA and a £175 million working capital outflow, primarily connected to renewable certificates.

Management expects part of this working capital movement to reverse in the second half as certificates from the previous year are settled. Even so, the first-half cash conversion was weak and deserves attention.

Net debt increased from £784 million at the end of 2025 to £1,025 million at 30 June 2026. Cash and cash equivalents fell from £302 million to £180 million.

The balance sheet is not yet stretched on Drax's preferred leverage measure. Net debt was 1.3 times last-12-month adjusted EBITDA, below the group's long-term target of around two times. Drax also reported £630 million of cash and committed facilities, while its credit ratings were reiterated following the BSIF announcement.

However, those figures exclude the effect of completing the proposed acquisition. Drax has agreed a £1,083 million bridging facility that can be drawn to fund the transaction and repay BSIF debt as required.

Batteries are central to the 2029 target

Drax maintained its 2026 adjusted EBITDA expectations in line with analyst consensus of £665 million, based on a range of £643 million to £681 million. This outlook excludes the proposed BSIF acquisition.

Further out, management is targeting adjusted EBITDA of £650 million to £800 million in 2029 from its existing businesses and committed battery developments. The target includes Pellet Production, Biomass Generation, flexible generation and 0.7GW of battery energy storage systems, or BESS.

BESS facilities store electricity and can release it quickly when the grid needs additional power or support. Drax has 710MW in development through physical assets and long-term tolling agreements, with projects expected to become operational during 2027 and 2028.

The Flexitricity optimisation platform, acquired for £36 million net of cash, is intended to help Drax manage these assets and provide services for third-party generators. Flexitricity currently provides routes to market for around 0.9GW of assets.

Management is also targeting annual structural savings of more than £150 million from 2027 against a 2024 cost base. Delivering both the savings and battery projects on schedule will be important if Drax is to reach its 2029 earnings range.

What the BSIF acquisition could add

Drax's proposed acquisition of Bluefield Solar Income Fund values BSIF's equity at approximately £561 million and gives it an enterprise value of around £1,082 million.

BSIF shareholders voted 99% in support of the transaction. Subject to the remaining conditions and Court sanction, the scheme was expected to become effective on 31 July 2026.

The acquisition would add 0.9GW of operating and under-construction solar and wind capacity, plus a 2.9GW development pipeline. BSIF generated around £130 million of EBITDA and £118 million of operating free cash flow in its 2025 financial year.

This could give Drax more predictable, contracted renewable earnings to balance the potentially higher but more volatile returns from flexible generation. Importantly, none of the BSIF contribution is included in the £650 million to £800 million adjusted EBITDA target for 2029.

The strategic logic is understandable, but integration, funding and development execution all introduce risk. Potential benefits from the acquisition will only become clearer after completion and when Drax updates its 2026 outlook, which it expects to do in September.

Operational progress comes with outages

Drax commissioned its first open-cycle gas turbine, or OCGT, at Hirwaun in May. The unit added 299MW of capacity and operated for around 440 hours during June. Two further OCGTs are expected to enter service, one beginning commissioning in the second half of 2026 and another in 2027.

At Cruachan, two of the four pumped storage units remain affected by a grid connection failure involving assets owned by Scottish Power Energy Networks. The outage is expected to continue into 2027.

Drax is separately investing around £80 million to refurbish and upgrade those units. The work should add 40MW of capacity, but it creates another area where timing and execution matter.

What Drax investors should watch next

These results are weaker than the prior-year comparison, particularly for adjusted earnings and operating cash flow. Lower power prices have exposed the volatility within Biomass Generation, while net debt has risen and the buyback is paused.

Against that, generation volumes remained resilient, leverage was below Drax's long-term target, the dividend increased and full-year guidance was maintained. The company has also made tangible progress on OCGTs, batteries and Flexitricity.

The next important developments are completion of the BSIF acquisition, the promised September outlook update, restoration work at Cruachan and evidence that working capital reverses during the second half. Drax's growth plan is becoming broader and potentially more resilient, but investors now need to see that the capital commitments translate into dependable cash returns.