Orsted · OMXCOP:ORSTED
Orsted — DONG Energy — Q2 2017 Earnings Presentation
43 slides from Orsted's earnings presentation, Aug 10, 2017
Slide 1: Q2 2017 Interim Report Presentation
10 August 2017 = : energy
Slide 2: Disclaimer
DISCLAIMER. Certain statements in this presentation are based on the beliefs of our management as well as assumptions made by and information currently available to the management. Forward-looking statements (other than statements of historical fact) regarding our future results of operations, finan
Slide 3: Execution on wind build-out, farm downs and bioenergy
Execution on 2020 Wind Execution on 11-12GW Farm downs Bioenergy Power build-out ambition by 2025 • Agreement to divest 50% of • Commissioning of first • Inauguration of • Awarded three projects (590MW) Borkum Riffgrund 2 (450MW) REnescience plant in Northwich at German auction in April. Two with ex
Slide 4: Safeguard, Commitments, Growth
• Rating commitment Safeguard • Optimise leverage • Fuel existing growth plan Commitments • Honour existing dividend policy • Additional profitable opportunities within offshore wind and other renewable technologies Growth • Farm down only subject to substantial value creation and risk diversificati
Slide 5: EBITDA and net profit
EBITDA Net profit Net profit Continuing operations Continuing operations Discontinued operations DKKm DKKm DKKm 2,506 2,484 673 479 Q2 2016 Q2 2017 Q2 2016 Q2 2017 Reported EBITDA up DKK 1.8bn Net profit up DKK 1.8bn Net profit up DKK 2.0bn • Earnings from operating wind farms up 48% due to ramp up
Slide 6: Net debt, FFO/Adjusted net debt and ROCE
Net interest-bearing debt development FFO/Adjusted net debt2 Adjusted ROCE3 DKKm % % 57 18 47 15 1 1 30 June 2016 30 June 2017 30 June 2016 30 June 2017 Net debt increased by DKK 3.8bn FFO/Adjusted net debt of 47% Adjusted ROCE of 18% • Cash flow from operations: Strong EBITDA offset by funds tied u
Slide 7: Wind Power: generation, EBITDA, free cash flow
Power generation EBITDA Sites Free cash flow Adjusted ROCE1 TWh DKKm Construction contracts DKKm % and divestment gains Other 4,191 -952 1,637 2,271 -3,886 1.8 17 1,105 1.2 2,819 11 1,233 -67 -265 Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017 30 June 2016 30 June 2017 Power generation up 50% EBITD
Slide 8: Wind farm capacity and commissioning
Wind farm MW capacity Commissioning SPA/CA split 2015 2016 H1 17 H2 17e 2018e SPA All Gode Wind 1 330 Q4 16 CA: 75-100% 0-10% 65-75% 20-30% SPA Gode Wind 2 252 Q4 16 CA: 75-100% 55-65% 30-40% 0-10% SPA DKK 0.6bn Burbo Bank Ext. 258 Q1 17 CA: 75-100% 80-90% 10-20% SPA DKK 2.5bn DKK 1.4bn Race Bank 57
Slide 9: Installed capacity and construction projects
Installed capacity, MW 1 752 1,200 450 Target 6.5GW 659 573 6,731 3,849 Q2 2017 Race Bank Walney Borkum Hornsea 1 2020 Borssele Extension Riffgrund 2 1&2 Country UK UK Germany UK Netherlands Expected completion 2018 2018 2019 2020 2020/21 On time/budget / / / / / Main activity next Turbine installat
Slide 10: Bioenergy & Thermal Power
Revenue EBITDA Ancillary services Free cash flow DKKm DKKm Heat DKKm Power 56 70 133 68 -353 -179 -575 1,053 -342 -41 750 -153 Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017 Revenue up DKK 0.3bn EBITDA decreased DKK 0.1bn FCF decreased by DKK 0.2bn • Heat revenue increased due to • Negative effect
Slide 11: Distribution & Customer Solutions
EBITDA Reported, Distribution Free cash flow Adjusted ROCE2 Reported, CS1 DKKm Underlying, Distribution DKKm % Underlying, CS1 516 452 435 62 391 251 85 -1,954 44 41 390 306 265 Q216 Q217 Q2 2016 Q2 2017 Q2 2016 Q2 2017 EBITDA increased DKK 0.1bn FCF decreased by DKK 2.4bn Adjusted ROCE of 41% • Str
Slide 12: Oil and gas
Oil and gas production EBITDA Net profit Free cash flow BOEm Gas DKKm DKKm DKKm Oil 8.7 6.6 2,655 6.2 2,598 2,484 5.0 1,704 -1,049 2.5 479 1.6 Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017 Production down 24% EBITDA up DKK 0.9bn Net profit up DKK 2.0bn FCF increased by DKK 2.8bn •
Slide 13: Financial outlook upgraded
Financial outlook upgraded EBITDA (BUSINESS PERFORMANCE) OUTLOOK 2017 RETURN ON CAPITAL EMPLOYED (ROCE) Group DKK 17-19bn Group 12-14% Avg. 2017-2023 Wind Power 13-15% Avg. 2017-2023 BUSINESS UNIT EBITDA DIRECTION FY 2017 VS. FY 2016 Distribution & Customer Solutions 9-11% Avg. 2017-2023 Wind Power
Slide 14: DONG
DONG energy
Slide 15: DONG
DONG energy
Slide 16: Financial highlights
FINANCIAL HIGHLIGHTS Q2 17 Q2 16 D EBITDA DKKm 4,442 2,615 70% • Wind Power 4,191 2,270 85% • Bioenergy & Thermal Power (153) (41) 273% • Distribution & Customer Solutions 516 452 14% Net profit – continuing operations 2,506 673 272% Net profit – discontinued operations 2,484 479 420% Total net prof
Slide 17: Wind Power financial highlights
FINANCIAL HIGHLIGHTS Q2 17 Q2 16 D EBITDA DKKm 4,191 2,271 85% • Sites incl. O&Ms and PPAs 1,637 1,105 48% • Construction contracts and farm down gains 2,819 1,233 129% • Other incl. A2SEA and project development (265) (67) 296% Adjusted ROCE1 % 17.0 10.8 6.2%p KEY BUSINESS DRIVERS Power generation
Slide 18: Wind power measures
Key commentary Wind power measures % • Q2 2017 WEC at 84%, 9%-point higher than Q2 2016 • Q2 WEC in a normal wind year is 82%, i.e. Q2 2017 2%-point above normal wind year 82 • Availability at same level as last year • Load factor of 38% in Q2 2017, 4%-point 94 93 higher than Q2 2016 due to the high
Slide 19: Bioenergy & Thermal Power financial highlights
FINANCIAL HIGHLIGHTS Q2 17 Q2 16 D EBITDA DKKm (153) (41) 273% • Heat 133 68 96% • Ancillary services 56 70 (20%) • Power (342) (179) 91% Free cash flow (575) (353) 63% KEY BUSINESS DRIVERS Heat generation TWh 1.3 1.4 (7%) Power generation TWh 1.5 1.1 36% Degree days # 451 399 13% Power price, DK EU
Slide 20: Distribution & Customer Solutions highlights
FINANCIAL HIGHLIGHTS Q2 17 Q2 16 D EBITDA DKKm 516 452 14% • Distribution 265 390 (32%) • Sales (26) 17 n.a. • Markets 311 129 141% • LNG (34) (84) (60%) Adjusted ROCE1 % 41.0 43.7 (2.7%p) KEY BUSINESS DRIVERS RAB Power DKKm 10,623 10,648 (1%) Gas sales TWh 28.3 35.6 (21%) Power sales TWh 8.8 8.5 4%
Slide 21: Oil & Gas financial highlights
FINANCIAL HIGHLIGHTS Q2 17 Q2 16 D EBITDA DKKm 2,598 1,704 52% • Denmark 401 226 77% • Norway 671 725 (7%) • United Kingdom 210 165 27% • Exploration and appraisal (79) (63) 25% • Hedges 1,395 651 114% Free cash flow 2,655 (1,049) n.a. KEY BUSINESS DRIVERS Oil production BOEm 6.6 8.7 (24%) Gas produ
Slide 22: EBITDA – Business Performance vs IFRS
DKKm H1 2017 H1 2016 EBITDA – BUSINESS PERFORMANCE (BP) 7,730 9,700 BP adjustment in respect of revenue for the year 1,314 (1,612) BP adjustment in respect of COGS for the year (424) 1,056 EBITDA – IFRS 8,620 9,144 Total BP adjustments for the year comprise: MtM of financial and physical hedging con
Slide 23: Gross investments and capital employed by business unit
GROSS AND NET INVESTMENTS (DKKm) H1 2017 H1 2016 Gross investments per Capital employed per Cash flow from investing activities (1,016) (3,571) business unit – H1 2017 business unit – H1 2017 Dividends received and capital reduction, reversed (13) (11) (continuing operations) (continuing operations)
Slide 24: Funds from operations / adjusted net debt
FUNDS FROM OPERATIONS / ADJUSTED NET DEBT (DKKm) H1 20171 FY 20161 H1 20161 Note: Following the initiated sales process of the O&G EBITDA – Business Performance 17,138 19,109 13,200 business and the fact that O&G is presented as asset Interest expenses, net (443) (402) (489) held for sale and discon
Slide 25: Gross debt, net debt and maturity schedule
Gross debt and hybrids Net debt Long term debt maturity schedule H1 2017 DKKbn H1 2017 12 594% 10 10% 8 36.9 54% 6.5 6 36% DKKbn 4 2 0.9 0 2025+ 2017 2018 2019 2020 2021 2022 2023 2024 2025 Bonds Hybrids Bank loans Q2 2016 Q2 2017 Bonds Bank loans 25
Slide 26: Interest rate and inflation risk management
Portfolio asset & liability duration-matching Nominal cash flow matching for inflation risk approach for interest rate risk management management Illustrative Illustrative <2Y Short duration (Bond holdings, Variable rate debt Power Distribution) Medium duration Inflation indexed and Fixed rate debt
Slide 27: Effective funding costs
Effective funding costs – gross debt Key risk figures H1 2017 (excl. hybrid) Bond and bank debt (excl. Hybrid), LHS, DKKbn (excl. hybrid) Gross interest expense (excl. Hybrid), LHS, DKKbn DKKbn Average effective interest rate (excl. Hybrid), RHS, % Cost of Modified Avg. time to % 70 6 debt (%) durat
Slide 28: Hybrid capital
Hybrid capital can broadly be defined as funding • Deeply subordinated and only senior to DONG Energy has made use of hybrid capital to instruments that combine features of debt and common equity maintain our ratings at target level in connection equity in a cost efficient manner • Without being dil
Slide 29: Hybrid capital cost example
Hybrid capital is an attractive form of financing for corporates: Illustrative example – current example • Provides strength to the balance sheet at relatively attractive terms (tax deductible) ASSUMPTIONS • Supportive to credit ratings Pricing for a Hybrid with first call in year 5: 3.5% (pre-tax)
Slide 30: Centralised financing strategy
We have a centralised financing strategy All cash flow generated by our subsidiaries as customary for vertically and supports the creditworthiness and rating of horizontally integrated European energy and thus the debt taken up by the Group utilities parent The centralised financing strategy was The
Slide 31: Currency risk management
• The purpose of our currency risk management is to reduce the Group’s currency risks over a 5-year horizon • The main principle is to hedge FX exposure once it is deemed relatively certain that the underlying cash flows in foreign currency will materialise • Thus, FX risk is hedged concurrently wit
Slide 32: Hedging of FX and power
Construction and Farm downs – Hedging of FX Commercial Operations – Hedging of FX and power Decision gates 100 • Early hedging of potential large DEVEX items Pre-FID 80 on a 100% basis 75 60 • Hedging of transmission asset divestment and 50 Final Investment CAPEX in GBP (100% share) 40 Decision • He
Slide 33: Fastest growing renewable technology in OECD
Fastest growing renewable technology in OECD Offshore wind offers multiple advantages Installed capacity CAGR, 2014-2020 % Utility size power generation 659 MW Walney Extension will power more than 460,000 UK homes Offshore 25% wind 1 Offers +45% capacity factors2 Solar PV 14% Significantly higher t
Slide 34: Wind Power core competencies
DONG Energy Wind Power core competencies ~2,000 Full-time employees2 Develop Build Operate Own Identify and mature Manage construction, Conduct life-cycle Attract capital through projects sourcing and supply maintenance partnerships ~110 ~1,150 ~640 ~100 Full-time employees ~2,000 2 Ability to desig
Slide 35: Construction track-record and operating leadership
Strong construction track-record due to full EPC1 Leader in operating offshore wind farms control # of operated turbines January 2017 Country Asset FID Gross capacity (MW) DONG Energy 1020 Burbo Bank Extension 2014 258 x2 Vattenfall 443 Gode Wind 1&2 2013 582 Westermost Rough 2013 210 EON 354 Borkum
Slide 36: Partnership model and up-front value realisation
Significant up-front value realisation from Wind farm partners by type, geography and # of partnership model partnerships1 Illustrative Without farm down With farm down (100% ownership) (50% ownership) Institutional 2 debt Insurance. Investments Capital employed Infrastructure / sovereign wealth fun
Slide 37: Race Bank value creation
Race Bank – a show case of value creation from the integrated business model Example Strong buying power December 2013 Innovative technology Project under development acquired Superior standardised design Synergies from O&M cluster June 2015 FID with double-digit 1st mover on 6.3 MW turbine1 IRR for
Slide 38: Deal elements and accounting
Deal elements Accounting Development Construction Operation Examples Westermost Burbo Bank 12-24 months Rough Extension FID Farm down (shared risk) (EPC wrap) Other operating SPA gain SPA Gain on shares income1 No paid tax locally During construction Revenue/COGS/ CA Construction agreement2 OPEX At
Slide 39: Offshore wind farms asset book
OFFSHORE WIND FARMS 1 Asset Book updated as of 30 June 2017 De nm ark Park Installed DE ow nership Ow ned Financial Fixed f eed-in tarif f , Partners capacity, MW capacity, MW share, % capacity, MW consolidation Commercial operational date Subsidy regime Subsidy expiry DKK/MWh Anholt (111 x SWT-3.6-
Slide 40: Trading operations
DONG Energy’s trading operations Value drivers in Market Trading • The main purpose of DONG Energy’s trading department is to • Flow of positions manage DONG Energy’s financial commodity exposures, including the • Market understanding – deep competency centre implementation of a hedging programme in
Slide 41: New regulation of gas distribution
New regulation effective from 1 January 2018 Current regulation is outdated – meets previous expectations Historical regulatory accounts settled and confirm the expected historical 5-year income cap with ex-ante approach and following elements revenues – thus unchanged expectations to 2017 results O
Slide 42: Pending issues and opportunities in new regulation
Pending issues in detailed implementation of new Benefits and opportunities in new regulation legislation 06/2018 12/2018 • Within the 5-year regulation period, additional regulatory return is 12/2017 secured by performing better on costs and investments than implied in DEA: executive order DERA: de
Slide 43: Investor Relations contacts
Henrik Brünniche Lund Sabine Lohse Rasmus Keglberg Hærvig Head of Investor Relations IR Officer IR Officer HEBRL@dongenergy.dk SABLO@dongenergy.dk RAKOL@dongenergy.dk