February 19, 2013 / 7:36 AM / 5 years ago

UPDATE 1-Drax annual earnings slip on costs

* 2012 EBITDA 298 mln stg vs 334 mln a year ago

* Sees first biomass unit transformation in April

LONDON, Feb 19 (Reuters) - Britain’s coal-fired power producer Drax reported a 10 percent dip in full-year earnings, in line with expectations, as it gears up to transfer to biomass production and higher operating costs take their toll.

Drax, the owner of one of Europe’s largest coal-fired power stations, said earnings before interest, taxes, depreciation, and amortization (EBITDA) fell to 298 million pounds ($461.3 million) for the year ended Dec. 31 from 334 million a year ago.

Market expectations ranged between 284.2 million and 314.2 million pounds, with the average at 292.9 million, according to a Thomson Reuters I/B/E/S poll of 13 analysts.

Drax secured financing last year which will enable it to push forward with its biomass investment plans.

“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,” said Chief Executive Dorothy Thompson in a statement on Tuesday.

Drax is converting to biomass fuel as rising coal prices squeeze its profits and the British government offers subsidies to raise the amount of energy generated from renewable sources to hit EU targets of 15 percent by 2020.

Thompson said she is confident the group will deliver attractive returns for shareholders in spite of the “significant capital” which will be invested over the next two years and EBITDA likely to be adversely impacted by the increasing costs of carbon.

Shares in Drax closed at 604.5 pence on Monday, valuing the group at 2.4 billion pounds.

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