Orsted · OMXCOP:ORSTED
Orsted — Ørsted (DONG Energy) — Q3 2016 Earnings Presentation
62 slides from Orsted's earnings presentation, Nov 8, 2016
Slide 1: Financial Report Q3 2016 Investor Presentation
FINANCIAL REPORT Q3 2016 I N V E S T O R P R E S E N TAT I O N 8 NOVEMBER 2016 Demolishing of the coal cranes at the Asnæs Combined Heat and Power plant
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: Improvements in all key metrics
Improvements in all key metrics Strategic highlights Q3 16 PERFORMANCE HIGHLIGHTS Q3 16 Q3 15 D 9M 16 9M 15 D • Process with the aim of ultimately exiting from our oil EBITDA DKKm 4,756 4,431 7% 17,166 14,836 16% and gas business initiated • Wind Power 1,643 1,384 19% 6,813 4,458 53% • Bioenergy & T
Slide 4: Wind Power
Wind Power Operational highlights Q3 16 FINANCIAL HIGHLIGHTS Q3 16 Q3 15 D 9M 16 9M 15 D • Development consent for the Hornsea 2 project EBITDA DKKm 1,643 1,384 19% 6,813 4,458 53% granted by the UK government • Sites incl. O&Ms and • Successful installation of export cable in the sensitive PPAs 1,0
Slide 5: Lower wind energy content year-to-date
Lower wind energy content year-to-date • Full year wind energy content (WEC) has Yearly WEC Quarterly WEC historically fluctuated with +/- 4%-points on (%) (%) an average wind year for DONG Energy’s 121 123 portfolio 111 • Q3 WEC at 78%, 1%-point lower than Q3 104 103 96 2015 99 97 97 89 88 • YTD WE
Slide 6: 4.4 GW Wind Power construction program well on track
4.4 GW Wind Power construction program well on track Capacity 1,200 (MW) 659 700 582 573 450 258 Gode Wind Burbo Bank Race Bank Walney Borkum Hornsea 1 Borssele 1&2 Extension Extension Riffgrund 2 1&2 Country Germany UK UK UK Germany UK Netherlands On time / On budget / / / / / / / Expected Within 4
Slide 7: Auctions & tenders in core markets over the next 18 months
Auctions & tenders in DONG Energy’s core markets over the next 18 months Auctions & tenders Expected bid deadline MW Borssele 3 & 4, NL Q3 2016 740 Kriegers Flak, DK Q4 2016 600 UK Q1 2017 TBA Germany Q1 2017 1,550 Massachusetts, USA Q3 2017 ≥ 400 South Holland Coast, NL Q3 2017 750 Germany Q1 2018
Slide 8: Bioenergy & Thermal Power
Bioenergy & Thermal Power Operational highlights Q3 16 FINANCIAL HIGHLIGHTS Q3 16 Q3 15 D 9M 16 9M 15 D • Inauguration of the biomass-converted Studstrup CHP EBITDA DKKm -129 -194 -34% -15 402 n.a. plant • Heat 35 37 -5% 235 248 -5% • Biomass-conversion of Avedøre 1 and Skærbæk CHP plants progressin
Slide 9: Biomass-conversion and REnescience projects well on track
Biomass-conversion and REnescience projects well on track Capacity Waste treatment capacity (MWe/MWth)1 (tons/year) 515 360 359 120,000 320 254 95 Studstrup Avedøre Skærbæk Unit 3 Unit 1 Unit 3 REnescience Country Denmark Denmark Denmark UK On time / On budget / / / / Expected completion 2016 2016 2
Slide 10: Distribution & Customer Solutions
Distribution & Customer Solutions Operational highlights Q3 16 FINANCIAL HIGHLIGHTS Q3 16 Q3 15 D 9M 16 9M 15 D • Successful renegotiation of one long-term gas EBITDA DKKm 1,508 46 n.a. 5,866 1,811 224% purchase contract • Distribution 310 345 -10% 1,380 1,400 -1% • Divestment of gas distribution gr
Slide 11: Oil & Gas
Oil & Gas Operational highlights Q3 16 FINANCIAL HIGHLIGHTS Q3 16 Q3 15 D 9M 16 9M 15 D • Restructuring of the business well in progress EBITDA DKKm 1,658 2,879 -42% 4,366 8,053 -46% • Edradour-Glenlivet progressing to go on stream in Q4 2017 • Denmark 82 284 -71% -407 1,478 n.a. • Divestment of fiv
Slide 12: Hedging of energy prices and FX
Hedging of energy prices and FX Accumulated energy exposures Q4 16 – Q3 20211 Accumulated currency exposures Q4 16 – Q3 20212 (DKKbn) (DKKbn) 13.0 52.9 9.7 6.7 7.0 5.0 4.5 15.6 1.0 0.8 2.8 0.6 Oil Gas Outright power Spread (power) GBP USD NOK Before hedging After hedging Before hedging After hedging
Slide 13: Substantial contribution to EBITDA from hedges
Substantial contribution to EBITDA from hedges Expected transfer value of hedges to EBITDA (DKKbn) 3.4 1.3 1.8 1.0 0.7 1.1 0.4 0.6 0.6 0.2 1.1 1.2 0.3 0.5 -0.2 -0.1 -0.1 -0.1 Group Q4 16 O&G Q4 16 Group 2017 O&G 2017 Oil Gas Power FX Coal 13
Slide 14: Financial outlook
Financial outlook We expect O&G to be cash flow positive in 2016 – Remaining outlook reaffirmed EBITDA OUTLOOK 2016 RETURN ON CAPITAL EMPLOYED (ROCE) Group DKK 20-23bn Group 12-14% Avg. 2017-2020 As previously communicated the EBITDA outlook is subject to completion Wind Power 13-15% Avg. 2017-2020
Slide 15: Q&A
Q&A Conference call tel: +45 3544 5583 / +44 203 194 0544
Slide 16: Appendix
APPENDIX
Slide 17: Differences in Business Performance EBITDA and IFRS EBITDA
Differences in Business Performance EBITDA and IFRS EBITDA DKKm 9M 16 9M 15 EBITDA – BUSINESS PERFORMANCE (BP) 17,166 14,836 BP adjustment in respect of revenue for the year -3,884 744 BP adjustment in respect of COGS for the year 1,095 -18 EBITDA – IFRS 14,377 15,562 TOTAL BP ADJUSTMENTS FOR THE YE
Slide 18: Investment
Investment Investments in 9M 2016 (DKKm) Gross investments per Business Unit in 9M 2016 CASH FLOW FROM INVESTING ACTIVITIES -6,396 Dividends received and capital reduction, reversal -12 21% Purchase and sale of securities, reversed -2,042 Sale of assets and companies reversed -4,355 3% 13.0 Loans to
Slide 19: Financing strategy
Financing strategy DONG Energy has a centralised financing All cash flow generated by DONG Energy’s strategy as customary for vertically and subsidiaries supports the creditworthiness horizontally integrated European energy and rating of and thus the debt taken up by utilities the Group parent The c
Slide 20: Currency hedging principles
Currency hedging principles • The purpose of DONG Energy’s 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 • Th
Slide 21: Hedging of FX and power risk in Wind Power
Hedging of FX and power risk in Wind Power Construction and Farm downs – Hedging of FX Commercial Operations – Hedging of FX and power Decision gates 100 100 • Early hedging of potential large DEVEX items on Pre-FID 80 80 a 100% basis 75 60 60 • Hedging of transmission asset divestment and 50 Final
Slide 22: FFO/Adjusted net debt calculation
FFO/Adjusted net debt calculation FFO/ADJUSTED NET DEBT 9M 161 EoY 151 9M 151 EBITDA 20,813 18,484 18,201 Adjusted net interest expenses -2,534 -2,280 -2,129 Interest expenses, net -678 -767 -657 Reversal of interest expenses transferred to assets -757 -389 -419 Interest element of decommission obli
Slide 23: Debt overview
Debt overview Gross debt and hybrids Net debt (DKKbn) Long term debt maturity schedule 9M 16 (DKKbn) -35% 12 9.2 2% 12% 10 42.4 55% 5.9 8 31% DKKbn 6 4 2 Bonds Hybrids Bank loans Other debt 0 2023+ 2016 2017 2018 2019 2020 2021 2022 EoY 15 9M 2016 Bonds Bank loans 23
Slide 24: Hybrid capital in short
Hybrid capital in short Hybrid capital can broadly be defined as • Deeply subordinated and only senior to DONG Energy has made use of hybrid capital funding instruments that combine features of common equity to maintain our ratings at target level in debt and equity in a cost efficient manner • With
Slide 25: Benefits of hybrid capital
Benefits of hybrid capital 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) • Supportive to credit ratings ASSUMPTIONS • WACC efficient instrument to enhan
Slide 26: DONG Energy – Leading the energy transformation
Emphasise strong track record in building wind farms DONG Energy – LEADING THE ENERGY TRANSFORMATION April, 2016 DONG ENERGY – LEADING THE ENERGY TRANSFORMATION 1
Slide 27: DONG Energy today
DONG Energy today Key figures 2015: DKK 71bn revenue % share of operating profit (EBITDA1), 9M 2016 DKK 19bn EBITDA % share of capital employed as of 30 September 2016 ~6,700 employees Wind Power 40% 76% Danish utility 34% 18% Oil & Gas 26% 8% Global leader in attractive offshore wind market
Slide 28: Investment strategy drives growth and returns
Investment strategy drives growth and returns Gross CAPEX target 2016-2020 Wind Power Danish utility Oil & Gas Growth engine Stable earnings and green conversion Cash generator – Invest in competitive advantage – Optimise regulated returns and – Manage quality producing assets and accelerated, profi
Slide 29: DONG Energy aspires to remain a leader in the green energy transformation
DONG Energy aspires to remain a leader in the green energy transformation Current focus areas ▪ Fuel global market leadership and profitable growth in Wind Power ▪ Execute the build-out plan towards 2020 Wind Power ▪ Drive down cost to secure the pipeline post-2020 in existing and new markets ▪ Wind
Slide 30: Offshore wind is a large scale renewable technology with growth rates exceeding other renewables
Offshore wind is a large scale renewable technology with growth rates exceeding other renewables Fastest growing renewable technology in OECD Offshore wind offers multiple advantages Installed capacity CAGR, 2014-2020 % Utility size power generation Offshore wind 25% 659 MW Walney Extension will pow
Slide 31: DONG Energy pioneered the offshore wind industry and is today the global leader
DONG Energy pioneered the offshore wind industry and is today the global leader Largest offshore wind player globally today Wind Power’s scale enables cluster synergies Global offshore wind capacity MW •1 UK West coast (East Irish Sea): Barrow, Burbo Bank, Burbo Bank Extension, West of Duddon Sands,
Slide 32: Robust and highly visible offshore wind build-out plan until 2020
Robust and highly visible offshore wind build-out plan until 2020 4.4 GW with secured consent and subsidies currently under construction DONG Energy installed capacity projection towards 2020 MW 1 700 ~7,400 1,200 450 659 573 582 258 3,000 2015 Gode Burbo Bank Race Bank Walney Borkum Hornsea 1 Borss
Slide 33: Wind Power has built a strong and integrated end-to-end business model
Wind Power has built a strong and integrated end-to-end business model DONG Energy Wind Power core competencies ~1,970 Full-time employees2 Develop Build Operate Own Identify and mature Manage Conduct life-cycle Attract capital projects ~100 construction, ~1,140 maintenance ~640 through partnerships
Slide 34: Proven construction track-record and leading operating capabilities
Proven construction track-record and leading operating capabilities Construction track-record due to full EPC1 control Leader in operating offshore wind farms # of operated turbines end of 2015 Gross capacity Country Asset FID (MW) FID budget 900 Westermost Rough 2013 210 15-20%, below 2x Vattenfall
Slide 35: At the forefront of making the industry cost competitive
At the forefront of making the industry cost competitive Multiple levers to drive down cost in offshore wind Rapid technological development Wind turbine rotor diameter, year of commissioning Development Impact 180m 164m Turbines 6-8 MW +10 MW Fewer positions Boeing 747, 76m 154m and rotor siz
Slide 36: Offshore wind shows rapidly declining costs across all markets
Offshore wind shows rapidly declining costs across all markets and are almost on par with competing renewable technologies Offshore wind costs1 Transmission costs Estimated at the year of contracting, EUR/MWh, 2016 prices Levelised revenue -50% 156 145 Solar PV Onshore wind 142 122 102 78 71 64 57 W
Slide 37: Partnership model allows for significant portfolio value with less capital
Partnership model allows for significant portfolio value with less capital and reduced risk Significant up-front value realisation from DKK +42 Bn secured between 2010-2016 partnership model Wind farm partners by type, geography and # of partnerships1 Illustrative Without farm down With farm down (1
Slide 38: Global potential with high long-term growth in existing and new offshore wind markets
Global potential with high long-term growth in existing and new offshore wind markets Strong growth in existing and new offshore wind Auctions/tenders to be held in DONG Energy’s core markets markets the next 18 months 9 GW/year Installed cumulative capacity forecast GW 83 Auctions & tenders Expecte
Slide 39: 2021-2025 growth aspiration supported by substantial pipeline options
DONG Energy’s 2021-2025 growth aspiration of 5 GW supported by substantial pipeline options Pipeline options to date for 2021-2025 construction GW Post 2020 Wind Power opportunity segmentation Pipeline options (GW) Projects # projects 1 Competition among sites Hornsea 2 (1.8 GW) 4.5 2 – exclusiv
Slide 40: Connecting the dots: Shaping a double-digit IRR case in 18 months
Connecting the dots: Shaping a double-digit IRR case in 18 months Race Bank – a show case of value creation from the integrated business model Example Є Strong buying power Innovative technology December 2013 Project under development acquired Superior standardised design Synergies from O&M cluster
Slide 41: Danish utility
Danish utility % share of Danish utility 2015 operating profit (EBITDA) Distribution 67% Customer solutions 21% Bioenergy & Thermal Power 12% Stable earnings from regulated business Market leading B2C position with +700k 8 combined heat and power plants (CHPs), power and +90k gas supply B2C cu
Slide 42: Oil & Gas: Low-cost, low-risk asset portfolio centred around three high-quality assets
Oil & Gas: Low-cost, low-risk asset portfolio centred around three high-quality, cash generative assets Sizeable and well positioned portfolio Three attractive high-quality assets constituting ~75% of production in 2015 Focused North Western European footprint with more than 30 years of experience C
Slide 43: Appendix – DONG Energy Group
APPENDIX – DONG ENERGY GROUP
Slide 44: Highly visible long-term growth in Wind Power with secured subsidies
Highly visible long-term growth in Wind Power with secured subsidies Regime overview for production capacity1, end of period GW, Production capacity 6.0 Based on Wind Power aspiration to construct 1 GW per year (2021-2025) 2.52 3.5 0.7 0.5 2.9 2.7 0.2 0.7 0.4 1.1 2.1 1.9 1.1 0.4 0.4 1.7 0.4 0.4 1.4
Slide 45: Quality of earnings is going up
Quality of earnings is going up Operating profit (EBITDA) contribution from regulated, quasi-regulated and contracted activities Share of operating profit (EBITDA) Market exposed Majority of the commodity price exposure Illustrative was hedged at the beginning of 20151 80-90% Contracted 7% 34% Regul
Slide 46: ROCE growth supported by investments in offshore wind
ROCE growth supported by investments in offshore wind Adjusted ROCE1 Key ROCE drivers % Investment programme focused on attractive Wind Power projects Partnership model reduces capital employed while retaining NPV ROCE expected range Investments in Power Distribution and Bioenergy at solid, st
Slide 47: Appendix – Wind Power
APPENDIX – WIND POWER
Slide 48: Key financial accounting and tax recognition effects for Wind Power partnerships
Overview of key financial accounting and tax recognition effects for Wind Power partnerships Deal elements Accounting Development Construction Operation Examples 12-24 months Westermost Burbo Bank Rough Extension FID Farm down (shared risk) (EPC wrap) SPA gain SPA Gain on shares Other operating inco
Slide 49: EPC wrap / Construction Agreement – selected items
Illustrative example of Wind Power Partnership mechanics: EPC wrap / Construction Agreement – selected items1 CAPEX – base EBITDA Without farm down Without farm down Y-4 Y-3 Y-2 Y-1 Y1 Y2 Y3 Y4 Y5 Y-4 Y-3 Y-2 Y-1 Y1 Y2 Y3 Y4 Y5 CAPEX EBITDA - Production CAPEX – base EBITDA With farm down With farm d
Slide 50: Wind Power value drivers
Wind Power value drivers Key drivers1 Capacity Year Owner- Name (MW) commissioned ship Execution Assets2 Gode Wind 1 330 Q3 2016 50% 48-50% (weighted average) Load Factor Burbo Bank Extension is an outlier with lower than average expected load factor Gode Wind 2 252 Q2 2016 50% Primarily include BSU
Slide 51: Wind Power fact sheet
1 Wind Power fact sheet Denmark Park Installed DE ow nership Ow ned Financial GWh Partners capacity, MW capacity, MW share, % capacity, MW consolidation Commercial operational date Subsidy regime Subsidy expiry Fixed feed-in tarif, DKK/MWh Anholt Pension Danmark, PKA 400 400 50% 200 Pro rata 2013 Fi
Slide 52: Appendix – Bioenergy & Thermal Power
APPENDIX – BIOENERGY & THERMAL POWER
Slide 53: Resilient heat production business with a growing contribution from converted biomass plants
Resilient heat production business with a growing contribution from converted biomass plants Transformation of business model On track to meet ambitious biomass strategic target is well underway From To Conversion CHP (MWe/MWth)1 DONG Energy heat capacity per fuel type (MW, %) a Herning (77/150) Str
Slide 54: Growth opportunities based on core capabilities in the bioenergy value chain
Growth opportunities based on core capabilities in the bioenergy value chain A range of growth opportunities are explored Country Idea/ Maturation Construction Operation REnescience – enzyme-based separation of unsorted Opportunity Description Analysis waste from households Conversions Bio-conversio
Slide 55: Appendix – Distribution and Customer Solutions
APPENDIX – DISTRIBUTION AND CUSTOMER SOLUTIONS
Slide 56: Regulatory framework provides for stable earnings
Regulatory framework provides for stable earnings Current regulation based on Revenue and Return Cap Value creating business model Illustrative Revenue level in Revenue Cap1 Corrections 2004 Return on Return Cap2 Cost Regulated Asset Base Cost-plus regulation capped by historical tariffs Cost and
Slide 57: Continued asset base growth and focus on efficiency
Continued asset base growth and focus on efficiency Increasing Regulated Asset Base1 Large investment projects increase RAB 5% DKK Bn Roll out of ~1 MM remote power meters (RPM) to all 13.7 Remote customers during 2017-2019 10.8 10.7 Power Meters Total CAPEX of DKK ~2.1 Bn, of which DKK ~1.7 Bn
Slide 58: Appendix – Oil & Gas
APPENDIX —- OIL & GAS DONG energy
Slide 59: Strategic focus on cash generation
Strategic focus on cash generation Current transformation will result in a lean, cash O&G’s existing production is already very cost efficient generating business Attractive lifting cost across portfolio Significant cost reductions Lifting cost 6.4 USD/BOE in 9M 2016 - targeted overhead reduct
Slide 60: Optimising the portfolio
Optimising the portfolio Divestment of Trym, Oselvar, Tambar and Ula DONG Energy and Faroe Petroleum Norge A/S signed an agreement to divest its ownership shares in Trym, Oselvar, Tambar (incl. Tambar East) and Ula in July 2016. Key business objectives Support O&G’s strategic targets and Value Cen
Slide 61: Low-cost, low-risk asset portfolio with 2P reserves of 238 MM Boe
Low-cost, low-risk asset portfolio centred around three high-quality assets with 2P reserves of 238 MM Boe1,2 UK: Material West of Shetland position Alve / Marulk Key producing asset: Laggan-Tormore Norway: Low-cost position ‒ First production February 2016 (gas-weighted) 151 UK shelf Key produc
Slide 62: Hejre
Hejre Project status Two possible scenarios for the license going forward • The platform EPC contract has been terminated. As a result, the platform will not be completed and the Hejre project in its current form has been stopped • DONG Energy will be controlling the termination process and will ass